ABSTRACT Retinopathy of prematurity is characterised by abnormal retinal neovascularization in response to hypoxia stress. Prolyl 4‐hydroxylase domain protein 3 (PHD3) is a well‐known molecular oxygen sensor. However, the role that PHD3 plays in retinopathy of prematurity remains unclear. In this work, a mouse model of oxygen‐induced retinopathy (OIR) was used for in vivo studies. Compared with the mice in room air, OIR mice showed sprouting of retinal neovascularization and increased level of PHD3. It was further found that PHD3 overexpression weakened OIR‐induced retinal neovascularization and promoted cell apoptosis in the retina, indicating a mitigative effect on retinopathy. More importantly, OIR‐induced upregulation of hypoxia inducible factor‐1 alpha (HIF‐1α) and vascular endothelial growth factor (VEGFA) was offset by PHD3 overexpression. In in vitro experiments, mouse retinal microvascular endothelial cells (MRMECs) were cultured under hypoxic conditions. The functions of endothelial cells including cell proliferation, cell migration, and tube formation ability were suppressed by PHD3, suggesting an anti‐angiogenesis effect of PHD3. In line with in vivo experiments, the expression of HIF‐1α and VEGFA levels declined in endothelial cells when PHD3 was overexpressed. Taken together, PHD3 alleviates retinopathy of prematurity through anti‐angiogenesis, and the core mechanism may involve cell apoptosis of retina endothelial cell and HIF‐1α–VEGFA axis. These findings provide exciting new insights into the pathogenesis of retinopathy of prematurity, and could offer new treatment directions.