The hypoxia-inducible factor (HIF) prolyl hydroxylase PHD3 regulates cellular responses to hypoxia. In normoxia the expression of PHD3 is low and it occurs in cytosolic aggregates. SQSTM1/p62 (p62) recruits proteins into cytosolic aggregates, regulates metabolism and protein degradation and is downregulated by hypoxia. Here we show that p62 determines the localization, expression and activity of PHD3. In normoxia PHD3 interacted with p62 in cytosolic aggregates, and p62 was required for PHD3 aggregation that was lost upon transfer to hypoxia, allowing PHD3 to be expressed evenly throughout the cell. In line with this, p62 enhanced the normoxic degradation of PHD3. Depletion of p62 in normoxia led to elevated PHD3 levels, whereas forced p62 expression in hypoxia downregulated PHD3. The loss of p62 resulted in enhanced interaction of PHD3 with HIF-α and reduced HIF-α levels. The data demonstrate p62 is a critical regulator of the hypoxia response and PHD3 activity, by inducing PHD3 aggregation and degradation under normoxia.