Adaptation to dynamic environmental cues during organismal development requires coordination of tissue growth with available resources. More specifically, the effects of oxygen availability on body size have been well-documented, but the mechanisms through which hypoxia restricts systemic growth have not been fully elucidated. Here, we characterize the larval growth and metabolic defects in Drosophila that result from hypoxia. Hypoxic conditions reduced fat body opacity and increased lipid droplet accumulation in this tissue, without eliciting lipid aggregation in hepatocyte-like cells called oenocytes. Additionally, hypoxia increased the retention of Dilp2 in the insulin-producing cells of the larval brain, associated with a reduction of insulin signaling in peripheral tissues. Overexpression of the wildtype form of the insulin receptor ubiquitously and in the larval trachea rendered larvae resistant to hypoxia-induced growth restriction. Furthermore, Warts downregulation in the trachea was similar to increased insulin receptor signaling during oxygen deprivation, which both rescued hypoxia-induced growth restriction, inhibition of tracheal molting, and developmental delay. Insulin signaling and loss of Warts function increased tracheal growth and augmented tracheal plasticity under hypoxic conditions, enhancing oxygen delivery during periods of oxygen deprivation. Our findings demonstrate a mechanism that coordinates oxygen availability with systemic growth in which hypoxia-induced reduction of insulin receptor signaling decreases plasticity of the larval trachea that is required for the maintenance of systemic growth during times of limiting oxygen availability.