Acute normobaric hypoxia as well as longstanding hypobaric hypoxia induce pronounced physiological changes and may eventually lead to impairment of cerebral function. The aim of the present study is to investigate the effect of hypoxia on the cerebral activation response as well as to explore possible structural changes as measured by diffusion weighted imaging. Eleven healthy sea-level residents were studied after 5 weeks of adaptation to high altitude conditions at Chacaltaya, Bolivia (5260 m). The subjects were studied immediately after return to sea-level in hypoxic and normoxic conditions, and the examinations repeated 6 months later after re-adaptation to sea-level conditions. The BOLD response, measured at 1.5 T, was severely reduced during acute hypoxia both in the altitude and sea-level adapted states (50% reduction during an average S(a)O(2) of 75%). On average, the BOLD response magnitude was 23% lower in altitude than sea-level adaptation in the normoxic condition, but in the hypoxic condition, no significant differences were found. A small but statistically significant decrease in the apparent diffusion coefficient (ADC) was seen in some brain regions during acute hypoxia, whereas ADC was slightly elevated in high altitude as compared to sea-level adaptation. It is concluded that hypoxia significantly diminishes the BOLD response, and the mechanisms underlying this finding are discussed. Furthermore, altitude adaptation may influence both the magnitude of the activation-related response, as well as micro-structural features.