This morphological study demonstrates a role for endothelial cells in generating reactive oxygen species in early stages of retinopathy in the BBZ/Wor rat, an obese, noninsulin dependent model of diabetes. Hyperglycemia induced pseudohypoxia results in an imbalance in cytosolic NADH/NAD+. In the oxygen-rich environment of the retina, NADH oxidase generates superoxide radical which is dismutated to hydrogen peroxide. Localization of hydrogen peroxide by the cerium NADH oxidase enzyme activity cytochemical localization technique shows a statistically significant increase of peroxide localization in the central retina of diabetic rats as compared to age-matched, nondiabetic controls. Endothelial cell dysfunction, indicated by leakage of endogenous serum albumin, coincided with areas of NADH oxidase activity localization. In diabetic rats there are increased levels of fibronectin in areas of hydrogen peroxide localization. This in vivo, morphological study is the first demonstration of oxidative injury and endothelial cell dysfunction in the retina of a spontaneous, noninsulin dependent model of diabetes.