The skin-breathing amphibious fish Kryptolebias marmoratus experiences rapid environmental changes when moving between water- and air-breathing, but remodelling of respiratory morphology is slower (~1 week). We tested the hypotheses that (1) there is a trade-off in respiratory function of gills displaying aquatic versus terrestrial morphologies and (2) rapidly increased gill ventilation is a mechanism to compensate for reduced aquatic respiratory function. Gill surface area, which varied inversely to the height of the interlamellar cell mass, was increased by acclimating fish for 1 week to air or low ion water, or decreased by acclimating fish for 1 week to hypoxia (~20% dissolved oxygen saturation). Fish were subsequently challenged with acute hypoxia, and gill ventilation or oxygen uptake was measured. Fish with reduced gill surface area increased ventilation at higher dissolved oxygen levels, showed an increased critical partial pressure of oxygen and suffered impaired recovery compared with brackish water control fish. These results indicate that hyperventilation, a rapid compensatory mechanism, was only able to maintain oxygen uptake during moderate hypoxia in fish that had remodelled their gills for land. Thus, fish moving between aquatic and terrestrial habitats may benefit from cutaneously breathing oxygen-rich air, but upon return to water must compensate for a less efficient branchial morphology (mild hypoxia) or suffer impaired respiratory function (severe hypoxia).