Intratumoral hypoxia, which is associated with breast cancer metastasis and patient mortality, increases the percentage of breast cancer stem cells (BCSCs) but the underlying molecular mechanisms have not been delineated. Here we report that hypoxia-inducible factor 1 (HIF-1) triggers the expression and activity of TAZ, a transcriptional co-activator that is required for BCSC maintenance, through two discrete mechanisms. First, HIF-1 binds directly to the WWTR1 gene and activates transcription of TAZ mRNA. Second, HIF-1 activates transcription of the SIAH1 gene, which encodes a ubiquitin protein ligase that is required for the hypoxia-induced ubiquitination and proteasome-dependent degradation of LATS2, a kinase that inhibits the nuclear localization of TAZ. Inhibition of HIF-1α, TAZ, or SIAH1 expression by short hairpin RNA blocked the enrichment of BCSCs in response to hypoxia. Human breast cancer database analysis revealed that increased expression (greater than the median) of both TAZ and HIF-1 target genes, but neither one alone, is associated with significantly increased patient mortality. Taken together, these results establish a molecular mechanism for induction of the BCSC phenotype in response to hypoxia.