Osteoblasts and endothelial cells are intimately located within the skeleton, and their interaction is an integral component of bone repair, a complex process which continues for weeks under conditions of low oxygen tension. This study investigated the paracrine factors that couple angiogenesis and osteogenesis and demonstrates that hypoxia is an integral mediator of this complex phenomenon. Hypoxia stimulates vascular endothelial growth factor (VEGF) and not basic fibroblast growth factor (bFGF) release from primary human osteoblasts and is directly angiogenic, enhancing human microvascular endothelial cell proliferation and vessel tube formation in vitro. Hypoxic endothelial cells release potent osteogenic mitogens, endothelin-1 (Et-1) and insulin-like growth factor-1 (IGF-1). The conditioned medium of hypoxic osteoblasts significantly enhance blood vessel formation (indirect angiogenesis), far in excess of hypoxia alone, via a primarily VEGF-dependent mechanism. Et-1 and IGF-1 from hypoxic endothelial cells cause osteoblasts to proliferate and differentiate and further enhance their angiogenic potential. In summary, this study describes a reciprocal regulatory and autoregulatory process that couples the mutually dependent processes of angiogenesis and osteogenesis and demonstrates that the hypoxia characteristic of healing bone is an integral mediator of this complex phenomenon.