Cells experience different oxygen concentrations depending on location, organismal developmental stage, and physiological or pathological conditions. Responses to reduced oxygen levels (hypoxia) rely on the conserved Hypoxia-Inducible Factor 1 (HIF-1). Understanding the developmental and tissue-specific responses to changing oxygen levels has been limited by the lack of adequate tools for monitoring HIF-1 in vivo. To visualise and analyse HIF-1 dynamics in Drosophila, we used a hypoxia biosensor consisting of GFP fused to the oxygen-dependent degradation domain (ODD) of the HIF-1 homologue Sima. GFP-ODD responds to changing oxygen levels and to genetic manipulations of the hypoxia pathway, reflecting oxygen-dependent regulation of HIF-1 at the single-cell level. Ratiometric imaging of GFP-ODD and a red-fluorescent reference protein reveals tissue-specific differences in the cellular hypoxic status at ambient normoxia. Strikingly, cells in the larval brain show distinct hypoxic states that correlate with the distribution and relative densities of respiratory tubes. We present a set of genetic and image analysis tools that enable new approaches to map hypoxic microenvironments, to probe effects of perturbations on hypoxic signalling, and to identify new regulators of the hypoxia response.