The Drosophila melanogaster gene archipelago (ago) encodes the F-box/WD-repeat protein substrate specificity factor for an SCF (Skp/Cullin/F-box)-type polyubiquitin ligase that inhibits tumor-like growth by targeting proteins for degradation by the proteasome. The Ago protein is expressed widely in the fly embryo and larva and promotes degradation of pro-proliferative proteins in mitotically active cells. However the requirement for Ago in post-mitotic developmental processes remains largely unexplored. Here we show that Ago is an antagonist of the physiologic response to low oxygen (hypoxia). Reducing Ago activity in larval muscle cells elicits enhanced branching of nearby tracheal terminal cells in normoxia. This tracheogenic phenotype shows a genetic dependence on sima, which encodes the HIF-1α subunit of the hypoxia-inducible transcription factor dHIF and its target the FGF ligand branchless (bnl), and is enhanced by depletion of the Drosophila Von Hippel Lindau (dVHL) factor, which is a subunit of an oxygen-dependent ubiquitin ligase that degrades Sima/HIF-1α protein in metazoan cells. Genetic reduction of ago results in constitutive expression of some hypoxia-inducible genes in normoxia, increases the sensitivity of others to mild hypoxic stimulus, and enhances the ability of adult flies to recover from hypoxic stupor. As a molecular correlate to these genetic data, we find that Ago physically associates with Sima and restricts Sima levels in vivo. Collectively, these findings identify Ago as a required element of a circuit that suppresses the tracheogenic activity of larval muscle cells by antagonizing the Sima-mediated transcriptional response to hypoxia.