The theory that red blood cells (RBCs) generate and release nitric oxide (NO)-like bioactivity has gained considerable interest. However, it remains unclear whether it can be produced by endothelial NO synthase (eNOS), which is present in RBCs, and whether NO can escape scavenging by hemoglobin. The aim of this study was to test the hypothesis that arginase reciprocally controls NO formation in RBCs by competition with eNOS for their common substrate arginine and that RBC-derived NO is functionally active following arginase blockade. We show that rodent and human RBCs contain functional arginase 1 and that pharmacological inhibition of arginase increases export of eNOS-derived nitrogen oxides from RBCs under basal conditions. The functional importance was tested in an ex vivo model of myocardial ischemia-reperfusion injury. Inhibitors of arginase significantly improved postischemic functional recovery in rat hearts if administered in whole blood or with RBCs in plasma. By contrast, arginase inhibition did not improve postischemic recovery when administered with buffer solution or plasma alone. The protective effect of arginase inhibition was lost in the presence of a NOS inhibitor. Moreover, hearts from eNOS^−/− mice were protected when the arginase inhibitor was given with blood from wild-type donors. In contrast, when hearts from wild-type mice were given blood from eNOS^−/− mice, the arginase inhibitor failed to protect against ischemia-reperfusion. These results strongly support the notion that RBCs contain functional eNOS and release NO-like bioactivity. This process is under tight control by arginase 1 and is of functional importance during ischemia-reperfusion.