Pulmonary fibrosis is a progressive and often fatal disease with limited treatment options. Here, we identify a non-hypoxic mechanism for hypoxia-inducible factor 1α (HIF-1α) stabilization as a critical driver of fibrogenesis. Under ambient air conditions (∼18% pericellular O2, standard cell culture environment), TGF-β1 activates NADPH oxidase (NOX)2 and upregulates NOX4, generating ROS that oxidize the Fe2+ cofactor of prolyl hydroxylase domain-2 (PHD2) and impair HIF-1α hydroxylation. This ROS-mediated pseudo-hypoxic state, which we term "oxidative hypoxia," promotes a self-reinforcing loop between NOX enzymes and HIF-1α, sustaining fibrosis progression. To counter this process, we developed ACF-2, a rationally designed small molecule that binds PHD2 and scavenges ROS in its microenvironment, thereby preserving PHD2 activity and preventing HIF-1α hyperstabilization. ACF-2 effectively reduced fibrotic markers in vitro and attenuated bleomycin-induced pulmonary fibrosis in vivo, demonstrating superior efficacy compared with nintedanib. These findings establish oxidative hypoxia as a central mechanism of fibrosis progression and highlight PHD2 as a promising therapeutic target, while introducing ACF-2 as a mechanism-based antifibrotic lead.