There is mounting evidence that the deoxygenation of coastal marine ecosystems has been underestimated, particularly in the tropics. These physical conditions appear to have far-reaching consequences for marine communities, and have been associated with mass mortalities. Yet little is known about hypoxia in tropical habitats or about the effects it has on reef-associated benthic organisms. We explored patterns of dissolved oxygen (DO) throughout Almirante Bay, Panama and found a hypoxic gradient, with areas closest to the mainland having the largest diel variation in DO, as well as more frequent persistent hypoxia. We then designed a laboratory experiment replicating the most extreme in situ DO regime found on shallow patch reefs (3 m) to assess the response of the corallivorous fireworm, Hermodice carnaculata to hypoxia. Worms were exposed to hypoxic conditions (8 h ~ 1 mg l^-1 or 3.2 kPa) 16 times over an 8-week period, and at 4 and 8 weeks their oxygen consumption (respiration rates) were measured upon reoxygenation, along with regrowth of severed gills. Exposure to low DO resulted in worms regenerating significantly larger gills compared to worms under normoxia. This response to low DO was coupled with an ability to maintain elevated oxygen consumption/respiration rates after low DO exposure. In contrast, worms from the normoxic treatment had significantly depressed respiration rates after being exposed to low DO (week 8). This indicates that oxygen-mediated plasticity in both gill morphology and physiology may confer tolerance to increasingly frequent and severe hypoxia in one important coral predator associated with reef decline.