Natural cell death is critical for normal development of the nervous system, but the extracellular regulators of developmental cell death remain poorly characterized. Here, we studied the role of the CNTF/LIF signaling pathway during mouse retinal development in vivo. We show that exposure to CNTF during neonatal retinal development in vivo retards rhodopsin expression and results in an important and specific deficit in photoreceptor cells. Detailed analysis revealed that exposure to CNTF during retinal development causes a sharp increase in cell death of postmitotic rod precursor cells. Importantly, we show that blocking the CNTF/LIF signaling pathway during mouse retinal development in vivo results in a significant reduction of naturally occurring cell death. Using retroviral lineage analysis, we demonstrate that exposure to CNTF causes a specific reduction of clones containing only rods without affecting other clone types, whereas blocking the CNTF/LIF receptor complex causes a specific increase of clones containing only rods. In addition, we show that stimulation of the CNTF/LIF pathway positively regulates the expression of the neuronal and endothelial nitric oxide synthase (NOS) genes, and blocking nitric oxide production by pre-treatment with a NOS inhibitor abolishes CNTF-induced cell death. Taken together, these results indicate that the CNTF/LIF signaling pathway acts via regulation of nitric oxide production to modulate developmental programmed cell death of postmitotic rod precursor cells.