The Chester River, a tributary of Chesapeake Bay, provides critical habitats for numerous living species and oyster aquaculture, but faces increasing anthropogenic stresses due to excessive nutrient loading and hypoxia occurrence. An application of the Integrated Compartment Water Quality Model (ICM), coupled with the Finite-Volume Community Ocean Model (FVCOM), was carried out to study the controlling mechanisms and interannual variability in hypoxia occurrence from 2002 to 2011. Our study shows that hypoxia occurs mostly in the main stem in July, followed by August and June. On an interannual scale, 2005 had the highest hypoxia occurrence with an accumulative hypoxia volume of about 10 km3-days, whereas 2008 had the lowest occurrence with an accumulative hypoxia volume of about 1 km3-days. Nutrient loading is the predominant factor in determining the intensity and interannual variability in hypoxia in the Chester River estuary, followed by stratification and saltwater intrusion. Phosphorus has been found to be more efficient in controlling hypoxia occurrence than nitrogen due to their different limiting extent. On a local scale, the Chester River estuary is characterized by several meanders, and at certain curvatures helical circulation is formed due to centrifugal forces, leading to better reaeration and dissolved oxygen (DO) supply to the deeper layers. Our study provides valuable information for nutrient management and restoration efforts in the Chester River.