The prevalence of diabetes has been accelerating at an alarming rate in the last decade; some describe it as an epidemic. Diabetic eye complications are the leading cause of blindness in adults aged 25-74 in the United States. Early diagnosis and development of effective preventatives and treatments of diabetic retinopathy are essential to save sight. We describe efforts to establish functional indicators of retinal health and predictors of diabetic retinopathy. These indicators and predictors will be needed as markers of the efficacy of new therapies. Clinical trials aimed at either prevention or early treatments will rely heavily on the discovery of sensitive methods to identify patients and retinal locations at risk, as well as to evaluate treatment effects. We report on recent success in revealing local functional changes of the retina with the multifocal electroretinogram (mfERG). This objective measure allows the simultaneous recording of responses from over 100 small retinal patches across the central 45 degrees field. We describe the sensitivity of mfERG implicit time measurement for revealing functional alterations of the retina in diabetes, the local correspondence between functional (mfERG) and structural (vascular) abnormalities in eyes with early nonproliferative retinopathy, and longitudinal studies to formulate models to predict the retinal sites of future retinopathic signs. A multivariate model including mfERG implicit time delays and 'person' risk factors achieved 86% sensitivity and 84% specificity for prediction of new retinopathy development over one year at specific locations in eyes with some retinopathy at baseline. A preliminary test of the model yielded very positive results. This model appears to be the first to predict, quantitatively, the retinal locations of new nonproliferative diabetic retinopathy development over a one-year period. In a separate study, the predictive power of a model was assessed over one- and two-year follow-ups. This permitted successful prediction of new retinopathy development in eyes with and without retinopathy at baseline. Finally, we briefly describe our current research efforts to (a) locally predict future sight-threatening diabetic macular edema, (b) investigate local retinal function change in adolescent patients with diabetes, and (c) better understand the physiological bases of the mfERG delays. The ability to predict the retinal locations of future retinopathy based on mfERG implicit time provides clinicians a powerful tool to screen, follow-up, and even consider early prophylactic treatment of the retinal tissue in diabetic patients. It also aids identification of 'at risk' populations for clinical trials of candidate therapies, which may greatly reduce their cost by decreasing the size of the needed sample and the duration of the trial.