Final answer:
The Green Knight reacted by laughing and praising Sir Gawain's courage for flinching.
Step-by-step explanation:
When Sir Gawain flinched, the Green Knight reacted by laughing. In the poem 'Sir Gawain and the Green Knight,' after Sir Gawain flinches at the Green Knight's blow, the Green Knight reveals that it was just a test and praises Sir Gawain for his honesty. He commends Sir Gawain's courage, forgives him for his fear, and considers the test a success.