The oleaginous yeast Rhodosporidium toruloides has emerged as a robust host for production of microbial lipids as alternative biofuel feedstocks. Oxygen supply is a limiting factor for microbial lipid production, as lipid biosynthesis is highly oxygen-demanding. Vitreoscilla hemoglobin (VHb) is a protein capable of promoting oxygen delivery for anabolism. In this study, we developed R. toruloides with VHb expression for improved lipid production. The VHb expression cassette was integrated into the R. toruloides chromosome via the Agrobacterium-mediated transformation. In shake flask cultures, the engineered strain 4#-13 produced 34% more lipids than the parental strain did. Results obtained under reduced aeration conditions in 3 L bioreactor showed that lipid titer and lipid yield of the engineered strain 4#-13 were 116% and 71%, respectively, higher than those of the parental strain. Under high cell density culture conditions, the engineered strain 4#-13 grew faster and produced 72% more lipids. Our results demonstrated that the VHb gene is functional in R. toruloides for promoting lipid production. The strains described here may be further engineered by integrating extra genetic parts to attain robust producers for more valuable products. This should improve the economics of microbial lipids to facilitate a sustainable production of biodiesel and other lipid-based biofuels.