One of the most intriguing areas of research in erythrocyte physiology is the interaction of hemoglobin with nitric oxide (NO). These two molecules independently fulfill diverse and complex physiological roles, while together they subtly modulate microvascular perfusion in response to second-by-second changes in local metabolic demand, contributing to hypoxic vasodilation. It is through an appreciation of the temporal and structural constraints of the microcirculation that the principal requirements of the physiological interplay between NO and hemoglobin are revealed, elucidating the role of the erythrocyte in hypoxic vasodilation. Among the candidate molecular mechanisms, only S-nitrosohemoglobin (SNO-hemoglobin) directly fulfills the physiological requirements. Thus, NO is transported by red blood cells to microvascular sites of action in protected form as an S-nitrosothiol on the highly conserved hemoglobin beta-93 Cys residue, invariant in birds and mammals. SNO-hemoglobin dispenses NO bioactivity to microvascular cells on the release of oxygen, physiologically coupling hemoglobin deoxygenation to vasodilation. SNO-hemoglobin is the archetype for the role of S-nitrosylation in a newly identified class of biological signals, and disturbances in SNO-hemoglobin activity are associated with the pathogenesis of several important vascular diseases.