Abstract Von Hippel–Lindau (VHL) is a tumor suppressor that functions as the substrate recognition subunit of the CRL2VHL E3 complex. While substrates of VHL have been identified, its tumor suppressive role remains to be fully understood. For further determination of VHL substrates, we analyzed the physical interactome of VHL and identified the histone H3K9 methyltransferase SETBD1 as a novel target. SETDB1 undergoes oxygen-dependent hydroxylation by prolyl hydroxylase domain proteins and the CRL2VHL complex recognizes hydroxylated SETDB1 for ubiquitin-mediated degradation. Under hypoxic conditions, SETDB1 accumulates by escaping CRL2VHL activity. Loss of SETDB1 in hypoxia compared with that in normoxia escalates the production of transposable element-derived double-stranded RNAs, thereby hyperactivating the immune-inflammatory response. In addition, strong derepression of TEs in hypoxic cells lacking SETDB1 triggers DNA damage-induced death. Our collective results support a molecular mechanism of oxygen-dependent SETDB1 degradation by the CRL2VHL E3 complex and reveal a role of SETDB1 in genome stability under hypoxia.