Recent studies have demonstrated dramatic shifts in metabolic supply-and-demand ratios during inflammation, a process resulting in localized tissue hypoxia within inflammatory lesions (“inflammatory hypoxia”). As part of the adaptive immune response, T cells are recruited to sites of inflammatory hypoxia. Given the profound effects of hypoxia on gene regulation, we hypothesized that T-cell differentiation is controlled by hypoxia. To pursue this hypothesis, we analyzed the transcriptional consequences of ambient hypoxia (1% oxygen) on a broad panel of T-cell differentiation factors. Surprisingly, these studies revealed selective, robust induction of FoxP3, a key transcriptional regulator for regulatory T cells (Tregs). Studies of promoter binding or loss- and gain-of-function implicated hypoxia-inducible factor (HIF)-1α in inducing FoxP3. Similarly, hypoxia enhanced Treg abundance in vitro and in vivo. Finally, Treg-intrinsic HIF-1α was required for optimal Treg function and Hif1a–deficient Tregs failed to control T-cell–mediated colitis. These studies demonstrate that hypoxia is an intrinsic molecular cue that promotes FoxP3 expression, in turn eliciting potent anti-inflammatory mechanisms to limit tissue damage in conditions of reduced oxygen availability.