Rationale: Endothelial progenitor cells (EPCs, defined as sca-1 ⁺ flk-1 ⁺ lin ⁻ mononuclear blood cells) contribute to vascular repair. The role of hypoxia and reactive oxygen species (ROS) in mobilization and function of these cells is incompletely understood. Objective: We studied the contribution of the NADPH oxidase Nox2, an important vascular source of ROS in this context. Methods and Results: Hypoxia (10% oxygen) induced the mobilization of EPCs in wild-type (WT) and Nox1 but not in Nox2 knockout (Nox2 ^y/− ) mice. As erythropoietin (EPO) is known to induce EPC mobilization, we focused on this hormone. EPO induced the mobilization of EPCs in WT and Nox1 ^y/− but not Nox2 ^y/− animals. Transplantation of bone marrow from Nox2 ^y/− mice into WT-mice blocked mobilization in response to hypoxia and EPO, whereas transplantation of WT bone marrow into Nox2 ^y/− mice restored mobilization. Reendothelialization of the injured mouse carotid artery was enhanced by hypoxia as well as by EPO, and this effect was not observed in Nox2 ^y/− mice or after transplantation of Nox2 ^y/− bone marrow. In cultured EPCs from WT but not Nox2 ^y/− mice, EPO induced ROS production, migration, and proliferation. EPO signaling involves the STAT5 transcription factor. EPO-induced STAT5-dependent reporter gene expression was absent in Nox2-deficient cells. siRNA against the redox-sensitive phosphatase SHP-2 restored EPO-mediated STAT5 induction and inhibition of SHP-2 restored EPO-induced migration in Nox2-deficient cells Conclusions: We conclude that Nox2-derived ROS inactivate SHP-2 and thereby facilitate EPO signaling in EPCs to promote hypoxia-induced mobilization and vascular repair by these cells.