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As in other eutrophied estuaries and coastal embayments, persistent hypoxia now routinely develops during summer in the mesohaline portion of the Neuse River estuary (North Carolina, USA). In response to interannual differences in hydrography, summer 1997 exhibited much more intense and widespread hypoxia than summer 1998, permitting inferences about impacts of hypoxia on food web dynamics by comparing system changes across these two summers. The trophic structure of the Neuse estuary now resembles the generic pattern for a degraded temperate estuary with (1) intense planktonic algal blooms and similarly high production of free‐living bacteria, (2) trivial levels of abundance of rooted aquatic plants and benthic macroalgae, (3) depleted apex predators, and (4) functional extinction of the historically dominant benthic grazer, eastern oysters. Detailed carbon‐flow models, based on comprehensive field data, demonstrated large differences between the two summers in trophic transfers and system dynamics. Largely because of greater mortality of benthic invertebrates from more intense hypoxia, total biomass of heterotrophs declined over summer by 51% in 1997 as compared to only 17% in 1998. Because net primary production increased over summer and herbivory in this system is predominantly benthic, the fraction of primary production consumed by herbivores declined over summer by 35% in 1997 and 29% in 1998. Influx of juvenile fishes and their rapid growth in the estuarine nursery over summer led to increases in energy demand by demersal fishes of 380% and 507% in the successive summers. Thus, hypoxia‐enhanced diversion of energy flows into microbial pathways away from consumers and mass mortality of benthic invertebrates from bottom hypoxia occurred at the season of greatest demand by predatory fishes and crabs using the estuary as nursery. Average residence time of carbon in the ecosystem declined by 51% in 1997 and 29% in 1998. Total system throughput declined over summer 1997 while increasing in 1998, indicating the reduced capacity of the system to transfer carbon to higher trophic levels in the more hypoxic summer. Late‐summer trophic pathways were characterized by greater numbers of cycles, but flows became increasingly dominated by microbial loops rather than transfers to consumers. Ecosystem trophic efficiency was only ∼4%, lower than other estuaries similarly analyzed. System properties indicative of resiliency of system function including development capacity, ascendancy, and flow diversity declined over summer 1997, while increasing or declining less in 1998. Thus, intensification of hypoxia caused dramatic reduction in the ecosystem's ability to transfer energy to higher trophic levels and rendered the ecosystem potentially less resilient to other stressors.