The hypoxia-inducible factor (Hif)-1α (Hif-1α) and Hif-2α (Epas1) have a critical role in both normal development and cancer. von Hippel Lindau (Vhl) protein, encoded by a tumor suppressor gene, is an E3 ubiquitin ligase that targets Hif-1α and Epas1 to the proteasome for degradation. To better understand the role of Vhl in the biology of mesenchymal cells, we analyzed mutant mice lacking Vhl in mesenchymal progenitors that give rise to the soft tissues that form and surround synovial joints. Loss of Vhl in mesenchymal progenitors of the limb bud caused severe fibrosis of the synovial joints and formation of aggressive masses with histologic features of mesenchymal tumors. Hif-1α and its downstream target connective tissue growth factor were necessary for the development of these tumors, which conversely still developed in the absence of Epas1, but at lower frequency. Human tumors of the soft tissue are a very complex and heterogeneous group of neoplasias. Our novel findings in genetically altered mice suggest that activation of the HIF signaling pathway could be an important pathogenetic event in the development and progression of at least a subset of these tumors.