Normal cardiovascular development is exquisitely dependent on the correct dosage of the angiogenic growth factor and vascular morphogen vascular endothelial growth factor (VEGF). However, cardiac expression of VEGF is also robustly augmented during hypoxic insults, potentially mediating the well-established teratogenic effects of hypoxia on heart development. We report that during normal heart morphogenesis VEGF is specifically upregulated in the atrioventricular (AV) field of the heart tube soon after the onset of endocardial cushion formation (i.e. the endocardium-derived structures that build the heart septa and valves). To model hypoxia-dependent induction of VEGF in vivo, we conditionally induced VEGF expression in the myocardium using a tetracycline-regulated transgenic system. Premature induction of myocardial VEGF in E9.5 embryos to levels comparable with those induced by hypoxia prevented formation of endocardial cushions. When added to explanted embryonic AV tissue, VEGF fully inhibited endocardial-to-mesenchymal transformation. Transformation was also abrogated in AV explants subjected to experimental hypoxia but fully restored in the presence of an inhibitory soluble VEGF receptor 1 chimeric protein. Together, these results suggest a novel developmental role for VEGF as a negative regulator of endocardial-to-mesenchymal transformation that underlies the formation of endocardial cushions. Moreover, ischemia-induced VEGF may be the molecular link between hypoxia and congenital defects in heart septation.