The activity of the transcription factor hypoxia-inducible factor (HIF) is regulated by oxygen-dependent hydroxylation. Under normoxic conditions, hydroxylation of proline residues triggers destruction of its alpha-subunit while hydroxylation of Asn(803) in the C-terminal transactivation domain of HIF-1 alpha (CAD) prevents its interaction with p300. Here we report crystal structures of the asparagine hydroxylase (factor-inhibiting HIF, FIH) complexed with Fe((II)), 2-oxoglutarate cosubstrate, and CAD fragments, which reveal the structural basis of HIF modification. CAD binding to FIH occurs via an induced fit process at two distinct interaction sites. At the hydroxylation site CAD adopts a loop conformation, contrasting with a helical conformation for the same residues when bound to p300. Asn(803) of CAD is buried and precisely orientated in the active site such that hydroxylation occurs at its beta-carbon. Together with structures with the inhibitors Zn((II)) and N-oxaloylglycine, analysis of the FIH-CAD complexes will assist design of hydroxylase inhibitors with proangiogenic properties. Conserved structural motifs within FIH imply it is one of an extended family of Fe((II)) oxygenases involved in gene regulation.