In the present study, nanotoxicity mechanism associated with silver nanoparticles (AgNPs) exposure was investigated on the nematode, Caenorhabditis elegans focusing on the hypoxia response pathway. In order to test whether AgNPs-induced hypoxia inducible factor-1 (HIF-1) activation was due to hypoxia or to oxidative stress, depletion of dissolved oxygen (DO) in the test media and a rescue effect using an antioxidant were investigated, respectively. The results suggested that oxidative stress was involved in activation of the HIF-1 pathway. We then investigated the toxicological implications of HIF-1 activation by examining the HIF-1 mediated transcriptional response. Of the genes tested, increased expression of the flavin containing monooxygenase-2 (FMO-2) gene was found to be the most significant as induced by AgNPs exposure. We found that AgNPs exposure induced FMO-2 activation in a HIF-1 and p38 MAPK PMK-1 dependent manner, and oxidative stress was involved in it. We conducted all experiments to include comparison of AgNPs and AgNO3 in order to evaluate whether any observed toxicity was due to dissolution or particle specific. The AgNPs and AgNO3 did not produce any qualitative differences in terms of exerting toxicity in the pathways observed in this study, however, considering equal amount of silver mass, in every endpoint tested the AgNPs were found to be more toxic than AgNO3. These results suggest that Ag nanotoxicity is dependent not only on dissolution of Ag ion but also on particle specific effects and HIF-1–FMO-2 pathway seems to be involved in it.