Fish nursery habitats are increasingly hypoxic and the brain is recognized as highly hypoxia-sensitive, yet there is a lack of information on the effects of hypoxia on the development and function of the larval fish brain. Here, we tested the hypothesis that by inhibiting brain development, larval exposure to severe hypoxia has persistent functional effects on the cortisol stress response in zebrafish (Danio rerio). Exposing 5 days post-fertilization (dpf) larvae to 10% dissolved O2 (DO) for 16 h only marginally reduced survival, but it decreased forebrain neural proliferation by 55%, and reduced the expression of neurod1, gfap, and mbpa, markers of determined neurons, glia, and oligodendrocytes, respectively. The 5 dpf hypoxic exposure also elicited transient increases in whole body cortisol and in crf, uts1, and hsd20b2 expression, key regulators of the endocrine stress response. Hypoxia exposure at 5 dpf also inhibited the cortisol stress response to hypoxia in 10 dpf larvae and increased hypoxia tolerance. However, 10% DO exposure at 5 dpf for 16h did not affect the cortisol stress response to a novel stressor in 10 dpf larvae or the cortisol stress response to hypoxia in adult fish. Therefore, while larval exposure to severe hypoxia can inhibit brain development, it also increases hypoxia tolerance. These effects may transiently reduce the impact of hypoxia on the cortisol stress response but not its functional capacity to respond to novel stressors. We conclude that the larval cortisol stress response in zebrafish has a high capacity to cope with severe hypoxia-induced neurogenic impairment.