This study demonstrates the effects of conditioned media from transformed neonatal rat retinal pigment epithelial cells (tnrRPE-CM) in a culture system consisting of neonatal rat retinal explants. For this study, retinal explants from postnatal day 2 (PN2) normal rats were cultured for over 3 weeks on a poly-D-L-ornithine-coated surface in RPE-CM only, 10% serum, or a serum-free defined media, and then examined by phase-contrast and scanning electron microscopy and immunocytochemistry. After 2 days in vitro, long ganglion cell-like neurites projected from retinal explants grown in tnrRPE-CM. These neurites increased in number and length with prolonged time in culture. In addition, by 5 days, round cells were observed adjacent to neonatal explants grown in tnrRPE-CM. By day 10, these round cells had increased in number and were seen along the neurites, in massive clusters immediately adjacent to these explants and dispersed throughout the culture-plate surface. Media conditioned by primary cultures of normal neonatal rat RPE cells caused a similar, but less robust, cellular response in retinal explants when compared to tnrRPE-CM. At 10 days, retinal explants grown in 10% serum showed only a few short processes, but no round cells, while those explants grown in defined media appeared to be degenerating. The round migrating cells are classified as retinal progenitor cells since they immunostained for opsin and interphotoreceptor retinoid-binding protein (IRBP), two photoreceptor cell markers, and a few for cellular retinaldehyde binding protein (CRALBP), a Muller cell marker. Neurite outgrowth and retinal progenitor cell production from explants were eliminated when the tnrRPE-CM was subjected to trypsin or heat treatment, indicating that the factor(s) responsible for promoting these cellular events was most likely proteinaceous. Growth factors, including basic fibroblast growth factor, were unable to generate long neurite outgrowth or progenitor cell production as observed in RPE-CM-supplemented explant cultures. We report that CM from cultures of primary and transformed neonatal rat RPE cells promoted ganglion cell-like neurites and the production of migrating retinal progenitor cells that primarily expressed photoreceptor-specific markers, from neonatal rat retinal explants. This evidence further confirms the important role of RPE in retinal development. The production of large numbers of progenitor cells by an RPE-secreted factor(s) may have important implications for possible therapeutic approaches to help correct retinal disease states by replacing lost cells through transplantation technology.