Preconditioning, such as by brief hypoxic exposure, has been shown to protect hearts against severe ischaemia. Here we hypothesized that hypoxic preconditioning (HPC) protects injured hearts by mobilizing the circulating progenitor cells. Ischaemia–reperfusion (IR) injury was induced by left coronary ligation and release in rats kept in room air or preconditioned with 10% oxygen for 6 weeks. To study the role of erythropoietin (EPO), another HPC + IR group was given an EPO receptor (EPOR) antibody via a subcutaneous mini‐osmotic pump 3 weeks before IR induction. HPC alone gradually increased haematocrit, cardiac and plasma EPO, and cardiac vascular endothelial growth factor (VEGF) only in the first two weeks. HPC improved heart contractility, reduced ischaemic injury, and maintained EPO and EPOR levels in the infarct tissues of IR hearts, but had no significant effect on VEGF. Interestingly, the number of CD34+CXCR4+ cells in the peripheral blood and their expression in HPC‐treated hearts was higher than in control. Preconditioning up‐regulated cardiac expression of stromal derived factor‐1 (SDF‐1) and prevented its IR‐induced reduction. The EPOR antibody abolished HPC‐mediated functional recovery, and reduced SDF‐1, CXCR4 and CD34 expression in IR hearts, as well as the number of CD34+CXCR4+ cells in blood. The specificity of neutralizing antibody was confirmed in an H9c2 culture system. In conclusion, exposure of rats to moderate hypoxia leads to an increase in progenitor cells in the heart and circulation. This effect is dependent on EPO, which induces cell homing by increased SDF‐1/CXCR4 and reduces the heart susceptibly to IR injury.