Hypoxia-inducible factors (HIFs) are crucial for oxygen homeostasis during both embryonic development and postnatal life. Here we show that a novel HIF family basic helix-loop-helix (bHLH) PAS (Per-Arnt-Sim) protein, which is expressed predominantly during embryonic and neonatal stages and thereby designated NEPAS (neonatal and embryonic PAS), acts as a negative regulator of HIF-mediated gene expression. NEPAS mRNA is derived from the HIF-3alpha gene by alternative splicing, replacing the first exon of HIF-3alpha with that of inhibitory PAS. NEPAS can dimerize with Arnt and exhibits only low levels of transcriptional activity, similar to that of HIF-3alpha. NEPAS suppressed reporter gene expression driven by HIF-1alpha and HIF-2alpha. By generating mice with a targeted disruption of the NEPAS/HIF-3alpha locus, we found that homozygous mutant mice (NEPAS/HIF-3alpha(-)(/)(-)) were viable but displayed enlargement of the right ventricle and impaired lung remodeling. The expression of endothelin 1 and platelet-derived growth factor beta was increased in the lung endothelial cells of NEPAS/HIF-3alpha-null mice. These results demonstrate a novel regulatory mechanism in which the activities of HIF-1alpha and HIF-2alpha are negatively regulated by NEPAS in endothelial cells, which is pertinent to lung and heart development during the embryonic and neonatal stages.