Eukaryotic cells sense decreased oxygen levels and respond by altering their metabolic strategy to sustain non-respiratory ATP production through glycolysis, and thus promote cell survival in a hypoxic environment. Protein phosphatase 1 (PP1) has been recently implicated in the governance of the rational use of energy when metabolic substrates are abundant and contributes to cellular recovery following metabolic stress. Under conditions of hypoxia, the expression of the gamma isoform of PP1 (PP1γ), is diminished, an event we have hypothesized to be involved in the adaptive cellular response to hypoxia. Decreased PP1γ activity in hypoxia has a profound impact on the activity of the cAMP response element binding protein (CREB), a major transcriptional regulator of metabolic genes and processes. Here, we demonstrate a further mechanism leading to inhibition of PP1 activity in hypoxia which occurs at least in part through increased association with the nuclear inhibitor of PP1 (NIPP1), an event dependent upon decreased basal cAMP/PKA-dependent signaling. Using a dominant negative NIPP1 construct, we provide evidence that NIPP1 plays a major role in the regulation of both CREB protein expression and CREB-dependent transcription in hypoxia. Furthermore, we demonstrate functional sequellae of such events including altered gene expression and recovery of cellular ATP levels. In summary, we demonstrate that interaction with NIPP1 mediates decreased PP1γ activity in hypoxia, an event which may constitute an inherent part of the cellular oxygen-sensing machinery and may play a role in physiologic adaptation to hypoxia. J. Cell. Physiol. 209: 211–218, 2006. © 2006 Wiley-Liss, Inc.