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All eukaryotic cells utilize oxidative phosphorylation to maintain their high-energy phosphate stores. Mitochondrial oxygen consumption is required for ATP generation, and cell survival is threatened when cells are deprived of O2. Consequently, all cells have the ability to sense O2, and to activate adaptive processes that will enhance the likelihood of survival in anticipation that oxygen availability might become limiting. Mitochondria have long been considered a likely site of oxygen sensing, and we propose that the electron transport chain acts as an O2 sensor by releasing reactive oxygen species (ROS) in response to hypoxia. The ROS released during hypoxia act as signalling agents that trigger diverse functional responses, including activation of gene expression through the stabilization of the transcription factor hypoxia-inducible factor (HIF)-α. The primary site of ROS production during hypoxia appears to be complex III. The paradoxical increase in ROS production during hypoxia may be explained by an effect of O2 within the mitochondrial inner membrane on: (a) the lifetime of the ubisemiquinone radical in complex III; (b) the relative release of mitochondrial ROS towards the matrix compartment versus the intermembrane space; or (c) the ability of O2 to access the ubisemiquinone radical in complex III. In summary, the process of oxygen sensing is of fundamental importance in biology. An ability to control the oxygen sensing mechanism in cells, potentially using small molecules that do not disrupt oxygen consumption, would open valuable therapeutic avenues that could have a profound impact on a diverse range of diseases.