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Blood flow in the microcirculation is regulated by physiological oxygen (O₂) gradients that are coupled to vasoconstriction or vasodilation, the domain of nitric oxide (NO) bioactivity. The mechanism by which the O₂ content of blood elicits NO signaling to regulate blood flow, however, is a major unanswered question in vascular biology. While the hemoglobin in red blood cells (RBCs) would appear to be an ideal sensor, conventional wisdom about its chemistry with NO poses a problem for understanding how it could elicit vasodilation. Experiments from several laboratories have, nevertheless, very recently established that RBCs provide a novel NO vasodilator activity in which hemoglobin acts as an O₂ sensor and O₂-responsive NO signal transducer, thereby regulating both peripheral and pulmonary vascular tone. This article reviews these studies, together with biochemical studies, that illuminate the …