Erythropoietin (Epo), the hormone that stimulates red blood cell production, is induced by hypoxia. We have utilized the human hepatoma cell line, Hep3B, to investigate the regulation of the Epo gene. We present evidence that the oxygen sensor in Hep3B cells is a heme protein. Hypoxic and cobalt induction of Epo protein is paralleled by a 50- to 100-fold increase in Epo mRNA which we have accurately quantified by means of an assay based on competitive polymerase chain reaction. This increase in Epo mRNA is due primarily to increased transcription. Transfection experiments utilizing the sensitive luciferase reporter gene show that the minimal portions of the Epo gene required for hypoxic induction include a 53 bp promoter element and a 43 bp enhancer located downstream from the polyadenylation site. Gel shift experiments show that these two regions cross-compete for specific DNA binding proteins. The enhancer contains a hexanucleotide direct repeat with a two bp insert which footprints with nuclear extracts from Hep3B cells and, when mutated, results in loss of hypoxic induction. This sequence is likely to bind to a member of the steroid/thyroid hormone receptor family of DNA binding proteins. These enhancer and promoter elements appear to cooperate in enabling the Epo gene to respond to hypoxia in a physiologically appropriate manner.