Environmental signals in the cellular milieu such as hypoxia, growth factors, extracellular matrix (ECM), or cell-surface molecules on adjacent cells can activate signaling pathways that communicate the state of the environment to the nucleus. Several groups have evaluated gene expression or signaling pathways in response to increasing cell density as an in vitro surrogate for in vivo cell-cell interactions. These studies have also perhaps assumed that cells grown at various densities in standard in vitro incubator conditions do not have different pericellular oxygen levels. However, pericellular hypoxia can be induced by increasing cell density, which can exert profound influences on the target cell lines and may explain a number of findings previously attributed to normoxic cell-cell interactions. Thus, we first sought to test the hypothesis that cell-cell interactions as evaluated by the surrogate approach of increasing in vitro cell density in routine normoxic culture conditions results in pericellular hypoxia in prostate cancer cells. Second, we sought to evaluate whether such interactions affect transcription mediated by the hypoxia response element (HRE). Thirdly, we sought to elucidate the signal transduction pathways mediating the induction of HRE in response to cell density induced pericellular hypoxia in routine normoxic culture conditions. Our results indicate that paracrine cell interactions can induce nuclear localization of HIF-1a protein and this translocation is associated with strong stimulation of the HRE-reporter activity. We also make the novel observation that cell density-induced activity of the HRE is dependent on nitric oxide production, which acts as a diffusible paracrine factor secreted by densely cultured cells. These results suggest that paracrine cell interactions associated with pericellular hypoxia lead to the physiological induction of HRE activity via the cooperative action of Ras, MEK1, HIF-1a via pericellular diffusion of nitric oxide. In addition, these results highlight the importance of examining pericellular hypoxia as a possible stimulus in experiments involving in vitro cell density manipulation even in routine normoxic culture conditions.