A master equation study of vibrational relaxation and dissociation of oxygen is conducted using state-specific O2–O transition rates, generated by extensive trajectory simulations. Both O2–O and O2–O2 collisions are concurrently simulated in the evolving nonequilibrium gas system under constant heat bath conditions. The forced harmonic oscillator model is incorporated to simulate the state-to-state relaxation of oxygen in O2–O2 collisions. The system of master equations is solved to simulate heating and cooling flows. The present study demonstrates the importance of atom-diatom collisions due to the extremely efficient energy randomization in the intermediate O3 complex. It is shown that the presence of atomic oxygen has a significant impact on vibrational relaxation time at temperatures observed in hypersonic flow. The population of highly-excited O2 vibrational states is affected by the amount of atomic oxygen when modeling the relaxation under constant heat bath conditions. A model of coupled state-to-state vibrational relaxation and dissociation of oxygen is also discussed.