In aquatic vertebrates, hypoxia induces physiological changes that arise principally from O₂ chemoreceptors of the gill. Neuroepithelial cells (NECs) of the zebrafish gill are morphologically similar to mammalian O₂ chemoreceptors (e.g. carotid body), suggesting that they may play a role in initiating the hypoxia response in fish. We describe morphological changes of zebrafish gill NECs following in vivo exposure to chronic hypoxia, and characterize the cellular mechanisms of O₂ sensing in isolated NECs using patch-clamp electrophysiology. Confocal immunofluorescence studies indicated that chronic hypoxia (PO₂ = 35 mmHg, 60 days) induced hypertrophy, proliferation and process extension in NECs immunoreactive for serotonin or synaptic vesicle protein (SV2). Under voltage clamp, NECs responded to hypoxia (PO₂ = 25-140 mmHg) with a dose-dependent decrease in K⁺ current. The current-voltage relationship of the O₂-sensitive current (I_KO2) reversed near E_K and displayed open rectification. Pharmacological characterization indicated that I_KO2 was resistant to 20 mM TEA and 5 mM 4-AP, but was sensitive to 1 mM quinidine. In current-clamp recordings, hypoxia produced membrane depolarization associated with a conductance decrease; this depolarization was blocked by quinidine, but was insensitive to TEA and 4-AP. These biophysical and pharmacological characteristics suggest that hypoxia sensing in zebrafish gill NECs is mediated by inhibition of a background K⁺ conductance, which generates a receptor potential necessary for neurosecretion and activation of sensory pathways in the gill. This appears to be a fundamental mechanism of O₂ sensing that arose early in vertebrate evolution, and was adopted later in mammalian O₂ chemoreceptors.