Divergence of neural retinal and retinal pigment epithelial (RPE) lineages from the optic vesicle neuroepithelium starts at a very early stage of eye development. Partially or even fully differentiated RPEs of some vertebrate species are capable of transforming into neural retina. In the present study, we have shown that mammalian RPE possesses the ability to transdifferentiate into neural retina at early embryonic stages. If cultured in serum-free medium, presumptive rat RPE became pigmented and expressed a molecular marker of mature RPE. In the presence of basic fibroblast growth factor (bFGF), cultured early embryonic rat RPE did not acquire pigment and grew to form retina-like multilayer structure containing neuronal cells and cells that express markers of retinal ganglion, amacrine and rod photoreceptor cells. The effects of bFGF occurred independently of effects on cell division and became irreversible after periods that varied with tissue age. This study has demonstrated that already differentiated embryonic rat RPE still retain the ability to become neural retina up to certain stage.