Using {it ab initio} methods, we investigate the modification of the magnetic properties of the $m=2$ member of the strontium iridates Ruddlesden-Popper series Sr$_{m+1}$Ir$_{m}$O$_{3m+1}$, bilayer Sr$_3$Ir$_2$O$_7$, induced by epitaxial strain and oxygen vacancies. Unlike the single layer compound Sr$_2$IrO$_4$, which exhibits a robust in-plane magnetic order, the energy difference between in-plane and out-of-plane magnetic orderings in Sr$_3$Ir$_2$O$_7$ is much smaller and it is expected that small external perturbations could induce magnetic transitions. Our results indicate that epitaxial strain yields a spin-flop transition, that is driven by the crossover between the intralayer $J_1$ and interlayer $J_2$ magnetic exchange interactions upon compressive strain. While $J_1$ is essentially insensitive to strain effects, the strength of $J_2$ changes by one order of magnitude for tensile strains $geq$ 3~%. In addition, our study clarifies that the unusual in-plane magnetic response observed in Sr$_3$Ir$_2$O$_7$ upon the application of an external magnetic field originates from the canting of the local magnetic moments due to oxygen vacancies, which tilt the octahedral networks - thereby allowing for noncollinear spin configurations.
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