Congenital heart disease (CHD) represents the most prevalent inborn anomaly. Only a minority of CHD cases are attributed to genetic causes, suggesting a major role of environmental factors. Nonphysiological hypoxia during early pregnancy induces CHD, but the underlying reasons are unknown. Here, we have demonstrated that cells in the mouse heart tube are hypoxic, while cardiac progenitor cells (CPCs) expressing islet 1 (ISL1) in the secondary heart field (SHF) are normoxic. In ISL1+ CPCs, induction of hypoxic responses caused CHD by repressing Isl1 and activating NK2 homeobox 5 (Nkx2.5), resulting in decreased cell proliferation and enhanced cardiomyocyte specification. We found that HIF1α formed a complex with the Notch effector hes family bHLH transcription factor 1 (HES1) and the protein deacetylase sirtuin 1 (SIRT1) at the Isl1 gene. This complex repressed Isl1 in the hypoxic heart tube or following induction of ectopic hypoxic responses. Subsequently, reduced Isl1 expression abrogated ISL1-dependent recruitment of histone deacetylases HDAC1/5, inhibiting Nkx2.5 expression. Inactivation of Sirt1 in ISL1+ CPCs blocked Isl1 suppression via the HIF1α/HES1/SIRT1 complex and prevented CHDs induced by pathological hypoxia. Our results indicate that spatial differences in oxygenation of the developing heart serve as signals to control CPC expansion and cardiac morphogenesis. We propose that physiological hypoxia coordinates homeostasis of CPCs, providing mechanistic explanations for some nongenetic causes of CHD.