Preservation of bone mass is crucial for healthy ageing and largely depends on adequate responses of matrix-embedded osteocytes. These cells control bone formation and resorption concurrently by secreting the WNT/-catenin antagonist sclerostin (SOST). Osteocytes reside within a low oxygen microenvironment, but whether and how oxygen sensing regulates their function remains elusive. Here, we show that conditional deletion of the oxygen sensor prolyl hydroxylase (PHD) 2 in osteocytes results in a high bone mass phenotype, which is caused by increased bone formation and decreased resorption. Mechanistically, enhanced HIF-1 signalling increases Sirtuin 1-dependent deacetylation of the Sost promoter, resulting in decreased sclerostin expression and enhanced WNT/-catenin signalling. Additionally, genetic ablation of PHD2 in osteocytes blunts osteoporotic bone loss induced by estrogen deficiency or mechanical unloading. Thus, oxygen sensing by PHD2 in osteocytes negatively regulates bone mass through epigenetic regulation of sclerostin and targeting PHD2 elicits an osteo-anabolic response in osteoporotic models.