Lacustrine sediments are important sites of fixed nitrogen (N) elimination through the reduction of nitrate to N2 by denitrifying bacteria, and are thus critical for the mitigation of anthropogenic loading of fixed N in lakes. In contrast, dissimilatory nitrate reduction to ammonium (DNRA) retains bioavailable N within the system, promoting internal eutrophication. Both processes are thought to occur under oxygen-depleted conditions, but the exact O2 thresholds particularly of DNRA inhibition are uncertain. In O2-manipulation laboratory experiments with dilute sediment slurries and 15NO3− additions at low- to sub-micromolar O2 levels, we investigated how, and to what extent, oxygen controls the balance between DNRA and denitrification in lake sediments. In all O2-amended treatments, oxygen significantly inhibited both denitrification and DNRA compared to anoxic controls, but even at relatively high O2 concentrations (≥ 70 µmol L−1), nitrate reduction by both denitrification and DNRA was observed, suggesting a relatively high O2 tolerance. Nevertheless, differential O2 control and inhibition effects were observed for denitrification versus DNRA in the sediment slurries. Below 1 µmol L−1 O2, denitrification was favored over DNRA, while DNRA was systematically more important than denitrification at higher O2 levels. Our results thus demonstrate that O2 is an important regulator of the partitioning between N-loss and N-recycling in sediments. In natural environments, where O2 concentrations change in near bottom waters on an annual scale (e.g., overturning lakes with seasonal anoxia), a marked seasonality with regards to internal N eutrophication versus efficient benthic fixed N elimination can be expected.