Vascular dysfunction in diabetes is attributed to lack of bioavailable nitric oxide (NO) and is postulated as a primary cause of small vessel complications as a result of poor glycemic control. Although it has been proposed that NO is bound by red blood cells (RBCs) and can induce relaxation of blood vessels distal to its site of production in the normal circulation, the effect of RBC glycation on NO binding and relaxation of hypoxic vessels is unknown. We confirm RBC-induced vessel relaxation is inversely related to tissue oxygenation and is proportional to RBC S-nitrosohemoglobin (HbSNO) content (but not nitrosylhemoglobin content). We show more total NO bound inside highly glycated RBCs (0.0134 versus 0.0119 NO/Hb, respectively; P<0.05) although proportionally less HbSNO (0.0053 versus 0.0088 NO/Hb, respectively; P<0.05). We also show glycosylation impairs the vasodilator function of RBCs within a physiological range of tissue oxygenation. These findings may represent an important contribution to reduced NO bioavailability in the microvasculature in diabetes.