The bone microenvironment is composed of niches that house cells across variable oxygen tensions. However, the contribution of oxygen gradients in regulating bone and blood homeostasis remains unknown. Here, we generated mice with either single or combined genetic inactivation of the critical oxygen-sensing prolyl hydroxylase (PHD) enzymes (PHD1–3) in osteoprogenitors. Hypoxia-inducible factor (HIF) activation associated with Phd2 and Phd3 inactivation drove bone accumulation by modulating osteoblastic/osteoclastic cross-talk through the direct regulation of osteoprotegerin (OPG). In contrast, combined inactivation of Phd1, Phd2, and Phd3 resulted in extreme HIF signaling, leading to polycythemia and excessive bone accumulation by overstimulating angiogenic–osteogenic coupling. We also demonstrate that genetic ablation of Phd2 and Phd3 was sufficient to protect ovariectomized mice against bone loss without disrupting hematopoietic homeostasis. Importantly, we identify OPG as a HIF target gene capable of directing osteoblast-mediated osteoclastogenesis to regulate bone homeostasis. Here, we show that coordinated activation of specific PHD isoforms fine-tunes the osteoblastic response to hypoxia, thereby directing two important aspects of bone physiology: cross-talk between osteoblasts and osteoclasts and angiogenic–osteogenic coupling.