In chronic mountain sickness (CMS), increased blood O2 carrying capacity due to excessive erythrocytosis (EE, [Hb] ≥ 21g/dl) could be offset, especially during exercise, by both impaired cardiac output (QT) and O2 diffusion limitation in lungs and muscle. We hypothesized that EE results in reduced peak VO2 despite increased blood O2-carrying capacity, and that isovolumic hemodilution (IVHD) improves exercise capacity. In fourteen male residents of Cerro de Pasco, Peru (4340m), six with and eight without EE, we measured peak cycle-exercise capacity, VO2, QT, arterial blood gas parameters and (resting) blood volume. This was repeated for participants with EE after IVHD, reducing hematocrit by 20% (from 67% to 53%). From these data, we quantified the major O2 transport pathway components (ventilation, pulmonary alveolar-capillary diffusion, QT, and blood-muscle mitochondria diffusion). Participants with EE had similar peak VO2, systemic O2 delivery, and O2 extraction as non-EE controls, however with lower QT and higher arterial [O2]. After IVHD, peak VO2 was preserved (but not enhanced), with lower O2 delivery (despite higher QT) balanced by greater O2 extraction. The considerable variance in exercise capacity across the fourteen individuals was explained essentially completely by differences in both pulmonary and muscle O2 diffusional conductances and not by any differences in ventilation, [Hb], nor QT. In conclusion, EE does not result in lower peak VO2 in Andean males, and IVHD maintains, but does not enhance, exercise capacity.