Tumor tissues are chronically exposed to hypoxia owing to aberrant vascularity. Lipid droplet (LD) accumulation is a hallmark of hypoxic cancer cells, yet how LDs form and function during hypoxia remains poorly understood. Herein, we report that in various cancer cells upon oxygen deprivation, HIF-1 activation down-modulates LD catabolism mediated by adipose triglyceride lipase (ATGL), the key enzyme for intracellular lipolysis. Proteomics and functional analyses identified hypoxia-inducible gene 2 (HIG2), a HIF-1 target, as a new inhibitor of ATGL. Knockout of HIG2 enhanced LD breakdown and fatty acid (FA) oxidation, leading to increased ROS production and apoptosis in hypoxic cancer cells as well as impaired growth of tumor xenografts. All of these effects were reversed by co-ablation of ATGL. Thus, by inhibiting ATGL, HIG2 acts downstream of HIF-1 to sequester FAs in LDs away from the mitochondrial pathways for oxidation and ROS generation, thereby sustaining cancer cell survival in hypoxia.