Local vasodilation in response to hypoxia is a fundamental physiologic response ensuring oxygen delivery to tissues under metabolic stress. Recent studies identify a role for the red blood cell (RBC), with hemoglobin the hypoxic sensor. Herein, we investigate the mechanisms regulating this process and explore the relative roles of adenosine triphosphate, S-nitrosohemoglobin, and nitrite as effectors. We provide evidence that hypoxic RBCs mediate vasodilation by reducing nitrite to nitric oxide (NO) and ATP release. NO dependence for nitrite-mediated vasodilation was evidenced by NO gas formation, stimulation of cGMP production, and inhibition of mitochondrial respiration in a process sensitive to the NO scavenger C-PTIO. The nitrite reductase activity of hemoglobin is modulated by heme deoxygenation and heme redox potential, with maximal activity observed at 50% hemoglobin oxygenation (P50). Concomitantly, vasodilation is initiated at the P50, suggesting that oxygen sensing by hemoglobin is mechanistically linked to nitrite reduction and stimulation of vasodilation. Mutation of the conserved β93cys residue decreases the heme redox potential (ie, decreases E1/2), an effect that increases nitrite reductase activity and vasodilation at any given hemoglobin saturation. These data support a function for RBC hemoglobin as an allosterically and redox-regulated nitrite reductase whose "enzyme activity" couples hypoxia to increased NO-dependent blood flow.