Drosophila melanogaster is a model genetic organism with an exceptional hypoxia tolerance relative to mammals. Forward genetic, microarray, and P-element manipulations and selection experiments have revealed multiple mechanisms of severe hypoxia tolerance, including RNA editing, downregulation of metabolism, and prevention of protein unfolding. Drosophila live in microbe-rich, semiliquid food in which hypoxia likely indicates deteriorating environments. Hypoxia reduces growth and size by multiple mechanisms, influencing larval feeding rates, protein synthesis, imaginal cell size, and control of molting. In moderate hypoxia, these effects appear to occur without ATP limitation and are instead mediated by signaling systems, including hypoxia-inducible factor and atypical guanyl cyclase sensing of oxygen, with downstream actions on behavior, anabolism, and the cell cycle. In hypoxia, flies develop smaller sizes, but size does not evolve, whereas in hyperoxia, flies evolve larger sizes without exhibiting developmental size plasticity, suggesting differential evolutionary responses to natural versus novel directions of oxygen change.