Nerve inflammation plays an important role in the development and progression of neuropathic pain after chronic constrictive injury (CCI). Recent studies have indicated that hypoxia‐inducible factor 1α (HIF‐1α) is crucial in inflammation. Low‐level laser therapy has been used in treating musculoskeletal pain, but rare data directly support its use for neuropathic pain. We investigated the effects of low‐level laser on the accumulation of HIF‐1α, tumor necrosis factor‐α (TNF‐α), and interleukin‐1β (IL‐1β) in controlling neuropathic pain, as well as on the activation of vascular endothelial growth factor (VEGF) and nerve growth factor (NGF) in promoting functional recovery in a rat CCI model. CCI was induced by placing four loose ligatures around the sciatic nerve of rats. Treatments of low‐level laser (660 nm, 9 J/cm²) or sham irradiation (0 J/cm²) were performed at the CCI sites for 7 consecutive days. The effects of laser in animals with CCI were determined by measuring the mechanical paw withdrawal threshold, as well as the sciatic, tibial, and peroneal function indices. Histopathological and immunoassay analyses were also performed. Low‐level laser therapy significantly improved paw withdrawal threshold and the sciatic, tibial, and peroneal functional indices after CCI. The therapy also significantly reduced the overexpressions of HIF‐1α, TNF‐α, and IL‐1β, and increased the amounts of VEGF, NGF, and S100 proteins. In conclusion, a low‐level laser could modulate HIF‐1α activity. Moreover, it may also be used as a novel and clinically applicable therapeutic approach for the improvement of tissue hypoxia/ischemia and inflammation in nerve entrapment neuropathy, as well as for the promotion of nerve regeneration. These findings might lead to a sufficient morphological and functional recovery of the peripheral nerve. J. Comp. Neurol. 520:2903–2916, 2012. © 2012 Wiley Periodicals, Inc.