Aberrant activation of beta-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 beta-catenin signalling triggered by hypoxia. We show that hypoxia inhibits beta-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-1alpha (HIF-1alpha) competes with TCF-4 for direct binding to beta-catenin. DNA-protein interaction studies reveal that beta-catenin-HIF-1alpha interaction occurs at the promoter region of HIF-1 target genes. Furthermore, rigorous analyses indicate that beta-catenin can enhance HIF-1-mediated transcription, thereby promoting cell survival and adaptation to hypoxia. These findings demonstrate a dynamic role for beta-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.