Recent data suggest that hypoxia and its principal molecular signature HIF‐1 (hypoxia‐inducing factor‐1) may tune down inflammation by dictating anti‐inflammatory programs. We tested the effects of hypoxia and HIF‐1α on the homeostasis of naturally occurring regulatory T cells (Treg) and their transcriptional activator Foxp3. Hypoxia induced a time‐dependent increase in HIF‐1α in mouse and human T cells. Hypoxia upregulated the expression of Foxp3 in Jurkat T cells, human and murine mononuclear cells. The effects of hypoxia on Foxp3 expression were HIF‐1α‐dependent as they were abolished upon transfection with short‐interfering RNAs for HIF‐1α and promoted by HIF‐1α overexpression. Hypoxia increased the potency of Treg, as hypoxic CD4⁺CD25⁺ lymphocytes were more effective than normoxic cells in suppressing the proliferation of CD4⁺CD25⁻ effectors. In vivo expression of HIF‐1α achieved by hydrodynamic injection of the respective naked DNA similarly induced an increase in Foxp3 expression and an increase in the number of functionally active Foxp3⁺CD4⁺CD25⁺ Treg. Thus, hypoxia dictates an anti‐inflammatory program by driving expression of HIF‐1α that acts to increase the number and suppressive properties of naturally occurring CD4⁺CD25⁺ Treg.