Erythropoietin (EPO), named after its role in hematopoiesis, is also expressed in mammalian brain. In clinical settings, recombinant EPO treatment has revealed a remarkable improvement of cognition, but underlying mechanisms have remained obscure. Here, we show with a novel line of reporter mice that cognitive challenge induces local/endogenous hypoxia in hippocampal pyramidal neurons, hence enhancing expression of EPO and EPO receptor (EPOR). High-dose EPO administration, amplifying auto/paracrine EPO/EPOR signaling, prompts the emergence of new CA1 neurons and enhanced dendritic spine densities. Single-cell sequencing reveals rapid increase in newly differentiating neurons. Importantly, improved performance on complex running wheels after EPO is imitated by exposure to mild exogenous/inspiratory hypoxia. All these effects depend on neuronal expression of the Epor gene. This suggests a model of neuroplasticity in form of a fundamental regulatory circle, in which neuronal networks-challenged by cognitive tasks-drift into transient hypoxia, thereby triggering neuronal EPO/EPOR expression.