Yeast D-amino acid oxidase (DAO) can serve as a genetically encoded producer of reactive oxygen species (ROS) in redox signaling studies. However, dynamics of hydrogen peroxide production and its sensitivity to externally added D-alanine (D-Ala) in cells have not been determined. Here we show that DAO, fused to a genetically encoded H2O2 indicator HyPer, can be used for controlled production of ROS in living eukaryotic cells. We found a clear heterogeneity in ROS production dynamics between individual cells. Moreover, different cell lines demonstrated distinct sensitivity to added D-Ala. Finally, by comparing signals generated by the HyPer-DAO fusion protein versus coexpressed HyPer and DAO proteins, we show that the fusion system is more sensitive to hydrogen peroxide production. Our results show the utility of the HyPer-DAO genetically encoded system for redox signaling studies and suggest that H2O2 produced by DAO in the cytoplasm acts locally in close proximity to the enzyme.