Retinal development was studied by explant culture of retinas from embryonic and neonatal rats in response to medium conditioned (CM) by a transformed neonatal rat retinal pigment epithelial (tnrRPE) cell line. Retinal explants from embryonic days 16 and 18 and postnatal day 2 Long-Evans 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 medium. By 2 days in vitro, round cells were seen emerging from both embryonic and neonatal retinal explants grown in tnrRPE-CM. With extended time in culture, these round cells had increased in number and were seen in large confluent clusters adjacent to the explants. After 2 weeks in culture, some of these cells had undergone a morphological differentiation as shown by process formation. Insignificant numbers of these same cells were seen in explant cultures grown in 10% serum or serum-free defined medium. When isolated and subcultured, approx. 80% of the round cells from embryonic and neonatal rat retinal explants were densely immunolabeled for opsin and arrestin, both photoreceptor cell markers and neuron-specific enolase, a marker for mature neurons. Cellular retinaldehyde-binding protein, a Müller cell marker, immunolabeled approx. 30% of the cells from embryonic and neonatal rat retinal explants. In addition, nestin, an intermediate filament protein found only in neuroepithelial cells, was present in approx. 70% of the embryonic cells, but in only less than 1% of the neonatal cells. Based on this immunocytochemical characterization, these round cells are termed retinal progenitor cells and because of their mitogenic capacity under these in vitro conditions, these cells appear to possess stem cell characteristics. Moreover, in a 3-day bioassay, tnrRPE-CM caused a twofold and greater increase in harvested progenitor cells from both neonatal and embryonic explants, while cell numbers in control and growth factor-supplemented cultures showed no increase above the initial plating density. In these studies, CM from cultures of transformed neonatal rat RPE cells promoted the production, survival, proliferation and maturation of retinal progenitor cells from neonatal and embryonic rat retinal explants.