Hypoxia and edema are frequent and serious complications of traumatic brain injury (TBI). Therefore, we examined the effects of hypoxia on edema formation after moderate lateral fluid percussion (LFP) injury using NMR diffusion-weighted imaging (DWI). Adult Sprague-Dawley rats were separated into four groups: sham uninjured (S), hypoxia alone (H), trauma alone (T), and trauma and hypoxia (TH). Animals in Groups T and TH received LFP brain injury, with Groups H and TH undergoing 30 min of moderately severe hypoxia (FiO2 = 0.11) immediately after surgery or TBI (respectively). DWIs were obtained at 2, 4, and 24 h and at 1 week post injury, and apparent diffusion coefficient (ADC) maps were constructed. Animals in Groups T and TH showed an early decrease (p < 0.001) in ADC values in the cortex ipsilateral to TBI 4 hr post injury, followed by elevated ADCs 1 week later (p < 0.05). No significant differences in ADC values were seen between T and TH groups in the ipsilateral cortex. In contrast, the ipsilateral hippocampus for Group TH showed only increasing ADC values. This hyperintensity in the ADC map began at 2 h after TBI, was significant by 24 h (p < 0.05), and reached a maximum at 1 week. This hyperintensity was not observed in Group T. Histopathology seen in TBI animals corresponded well with the pathology observed with MRI. Midline shifts reflecting edema were only observed in TBI animals with little difference between normoxic (T) and hypoxic animals (TH). In sum, this study demonstrates that the development and extent of brain edema following TBI can be examined in vivo in rats using DWI technology. TBI resulted in an early decrease in ADC values indicating cytotoxic edema in the cortex that was followed at 1 week by an increase in the ADC that was associated with decreased tissue cellularity. Histopathology corresponded well to the regions of brain injury and edema visualized by T2 and DWI procedures. Overall, the addition of hypoxia to brain injury resulted in a small increase in the magnitude of edema in hippocampus and cortex over that seen with trauma alone.