Few teleost fishes incubate embryos out of water, but the oxygen-rich terrestrial environment could provide advantages for early growth and development. We tested the hypothesis that embryonic oxygen uptake is limited in aquatic environments relative to air using the selffertilizing amphibious mangrove rivulus, Kryptolebias marmoratus, which typically inhabits hypoxic, water-filled crab burrows. We found that adult mangrove rivulus released twice as many embryos in terrestrial versus aquatic environments and that air-reared embryos had accelerated developmental rates. Surprisingly, air-reared embryos consumed 44% less oxygen and possessed larger yolk reserves, but attained the same mass, length and chorion thickness. Water-reared embryos moved their opercula ∼2.5 more times per minute compared with air-reared embryos at 7 days post-release, which probably contributed to the higher rates of oxygen uptake and yolk utilization we observed. Genetically identical air-and waterreared embryos from the same parent were raised to maturity, but the embryonic environment did not affect growth, reproduction or emersion ability in adults. Therefore, although aspects of early development were plastic, these early differences were not sustained into adulthood. Kryptolebias marmoratus embryos hatched out of water when exposed to aerial hypoxia. We conclude that exposure to a terrestrial environment reduces the energetic costs of development partly by reducing the necessity of embryonic movements to dispel stagnant boundary layers. Terrestrial incubation of young would be especially beneficial to amphibious fishes that occupy aquatic habitats of poor water quality, assuming low terrestrial predation and desiccation risks.