Diabetic retinopathy remains the most common complication of diabetes mellitus and is a leading cause of visual loss in industrialized nations. The clinicopathology of the diabetic retina has been extensively studied, although the precise pathogenesis and cellular and molecular defects that lead to retinal vascular, neural and glial cell dysfunction remain somewhat elusive. This lack of understanding has seriously limited the therapeutic options available for the ophthalmologist and there is a need to identify the definitive pathways that initiate retinal cell damage and drive progression to overt retinopathy. The present review begins by outlining the natural history of diabetic retinopathy, the clinical features and risk factors. Reviewing the histopathological data from clinical specimens and animal models, the recent paradigm that neuroretinal dysfunction may play an important role in the early development of the disease is discussed. The review then focuses on the molecular pathogenesis of diabetic retinopathy with perspective provided on new advances that have furthered our understanding of the key mechanisms underlying early changes in the diabetic retina. Studies have also emerged in the past year suggesting that defective repair of injured retinal vessels by endothelial progenitor cells may contribute to the pathogenesis of diabetic retinopathy. We assess these findings and discuss how they could eventually lead to new therapeutic options for diabetic retinopathy.