The alveolar epithelium plays a central role in gas exchange and fluid transport, and is therefore critical for normal lung function. Since the bulk of water flux across this epithelium depends on the membrane water channel Aquaporin 5 (AQP5), we asked whether hypoxia had any effect on AQP5 expression. We show that hypoxia causes a significant (70%) decrease in AQP5 expression in the lungs of mice exposed to hypoxia. Hypoxia and the hypoxia mimetic, cobalt, also caused similar decreases in AQP5 mRNA and protein expression in the mouse lung epithelial cell line MLE-12. The action of hypoxia and cobalt on AQP5 transcription was demonstrated by directly quantifying heternonuclear RNA by real-time PCR. Dominant negative mutants of Hypoxia Inducible Factor (HIF-1α) and HIF-1α siRNA blocked the action of cobalt, showing that HIF-1α is a key component in this mechanism. The proteasome inhibitors, lactacystin or proteasome inhibitor-III completely abolished the effect of hypoxia and cobalt both at the protein and mRNA level indicating that the proteasome pathway is probably involved not only for the stability of HIF-1α protein, but for the stability of unidentified transcription factors that regulate AQP5 transcription. These studies reveal a potentially important physiological mechanism linking hypoxic stress and membrane water channels.