Aberrant activation of β-catenin promotes cell proliferation and initiates colorectal tumorigenesis^,. However, the expansion of tumours and the inadequacy of their local vasculature results in areas of hypoxia where cell growth is typically constrained^,. Here, we report a novel diversion in β-catenin signalling triggered by hypoxia. We show that hypoxia inhibits β-catenin–T-cell factor-4 (TCF-4) complex formation and transcriptional activity, resulting in a G1 arrest that involves the c-Myc–p21 axis. Additionally, we find that hypoxia inducible factor-1α (HIF-1α) competes with TCF-4 for direct binding to β-catenin. DNA–protein interaction studies reveal that β-catenin–HIF-1α interaction occurs at the promoter region of HIF-1 target genes. Furthermore, rigorous analyses indicate that β-catenin can enhance HIF-1-mediated transcription, thereby promoting cell survival and adaptation to hypoxia. These findings demonstrate a dynamic role for β-catenin in colorectal tumorigenesis, where a functional switch is instigated to meet the ever-changing needs of the tumour. This study highlights the importance of the microenvironment in transcriptional regulation.