It is well established that hypoxia impairs cognitive function; however, the physiological mechanisms responsible for these effects have received relatively little attention. This study examined the effects of graded reductions in fraction of inspired oxygen (FiO2) on oxygen saturation (SpO2), cerebral oxygenation, cardiorespiratory variables, activity of the sympathoadrenal system (adrenaline, noradrenaline) and hypothalamic‐pituitary‐adrenal axis (cortisol, copeptin), and cognitive performance. Twelve healthy males (mean [SD], age: 22  yrs, height: 178  cm, mass: 75  kg, FEV1/FVC ratio: 85  %) completed a 4‐task battery of cognitive tests to examine inhibition, selective attention (Eriksen Flanker), executive function (n‐back) and simple and choice reaction time (Deary‐Liewald). Tests were completed before and following 60 minutes of exposure to FiO2 0.2093, 0.17, 0.145, and 0.12. Following 60 minutes of exposure response accuracy in the n‐back task was significantly reduced in FiO2 0.12 compared to baseline (82  vs. 93  %; p < 0.001) and compared to all other conditions at the same time point (FiO2 0.2093: 92  %, FiO2 0.17: 91  %, FiO2 0.145: 85  %, FiO2 12: 82  %; all p < 0.05). The performance of the other tasks was maintained. Δ accuracy and Δ reaction time of the n‐back task was correlated with both Δ SpO2 (r (9) = 0.66; p < 0.001 and r (9) = ‐ 0.36; p = 0.037 respectively) and Δ cerebral oxygenation (r (7) = 0.55; p < 0.001 and r (7) = ‐ 0.38; p = 0.045 respectively). Plasma adrenaline, noradrenaline, cortisol and copeptin were not significantly elevated in any condition or correlated with any of the tests of cognitive performance. These findings suggest that reductions in peripheral oxygen saturation and cerebral oxygenation, and not increased activity of the sympathoadrenal system and hypothalamic‐pituitary‐adrenal axis, as previously speculated, are responsible for a decrease in cognitive performance during normobaric hypoxia.