Vascular remodeling and angiogenesis are required to improve the perfusion of ischemic tissues. The hypoxic environment, induced by ischemia, is a potent stimulus for hypoxia inducible factor 1α (HIF-1α) upregulation and activation, which induce pro-angiogenic gene expression. We previously showed that the tyrosine phosphatase SHP-2 drives hypoxia mediated HIF-1α upregulation via inhibition of the proteasomal pathway, resulting in revascularization of wounds in vivo. However, it is still unknown if SHP-2 mediates HIF-1α upregulation by affecting 26S proteasome activity and how the proteasome is regulated upon hypoxia. Using a reporter construct containing the oxygen-dependent degradation (ODD) domain of HIF-1α and a fluorogenic proteasome substrate in combination with SHP-2 mutant constructs, we show that SHP-2 inhibits the 26S proteasome activity in endothelial cells under hypoxic conditions in vitro via Src kinase/p38 mitogen-activated protein kinase (MAPK) signalling. Moreover, the simultaneous expression of constitutively active SHP-2 (E76A) and inactive SHP-2 (CS) in separate hypoxic wounds in the mice dorsal skin fold chamber by localized magnetic nanoparticle-assisted lentiviral transduction showed specific regulation of proteasome activity in vivo. Thus, we identified a new additional mechanism of SHP-2 mediated HIF-1α upregulation and proteasome activity, being functionally important for revascularization of wounds in vivo. SHP-2 may therefore constitute a potential novel therapeutic target for the induction of angiogenesis in ischemic vascular disease.