The retina has a uniquely high metabolic demand for oxygen that is normally met by a highly efficient vascular supply. Oxygen plays an essential role in oxidative phosphorylation as an electron acceptor in the mitochondrial respiratory chain in the synthesis of adenosine triphosphate required to support the metabolic demand, including that of the visual cycle. Maintenance of normal retinal function depends on a continuous supply of oxygen and on the capability to detect and respond rapidly to local oxygen deficiency (hypoxia). The functional reserve of oxygen is small and retinal hypoxia can cause neuroretinal dysfunction and degeneration that lead directly to vision loss. Local oxygen sensing mechanisms control adaptive responses that can help protect against ischaemic injury. In the retina, powerful oxygen sensing mechanisms rapidly detect alterations in intracellular oxygen tension and respond with adaptive changes that redress the balance between oxygen supply and demand. These responses include rapid changes in blood flow, protective metabolic adaptations and angiogenesis. In the eye, however, the angiogenic response to hypoxia is typically associated with oedema, haemorrhage and fibrosis that can exacerbate hypoxic neuroretinal injury, causing severe vision loss. This aberrant response is the target of novel therapies including inhibitors of vascular endothelial growth factor. However, non-specific angiostatic agents fail to consider appropriate beneficial adaptive responses to hypoxia, and risk compromising neuroprotective mechanisms. In this review, we discuss the current understanding of retinal oxygenation and oxygen sensing in health and disease, focussing on the central role of hypoxia-inducible transcription factors, and suggest that therapeutic strategies may be improved by considering more targeted interventions.