We investigated the effects of the hypoxia-mimetic CoCl2 in the pathogenic fungus Cryptococcus neoformans and demonstrated that CoCl2 leads to defects in several enzymatic steps in ergosterol biosynthesis. Sterol defects were amplified in cells lacking components of the Sre1p-mediated oxygen-sensing pathway. Consequently, Sre1p and its binding partner Scp1p were essential for growth in the presence of CoCl2. Interestingly, high copies of a single gene involved in ergosterol biosynthesis, ERG25, rescued this growth defect. We show that the inhibitory effect of CoCl2 on scp1Delta and sre1Delta cells likely resulted from either an accumulation of non-viable methylated sterols or a decrease in the amount of ergosterol. Similar findings were also observed in the ascomycetous yeast, Schizosaccharomyces pombe, suggesting that the effects of CoCl2 on the Sre1p-mediated response are conserved in fungi. In addition, gene expression analysis revealed limited overlap between Sre1p-dependant gene activation in the presence of CoCl2 and low oxygen. The majority of genes similarly affected by both CoCl2 and low oxygen were involved in ergosterol synthesis and in iron/copper transport. This article identifies the Sre1p pathway as a common mechanism by which yeast cells sense and adapt to changes in both CoCl2 concentrations and oxygen levels.