We examined the effect of insertion of an exogenous gene on retinal function to assess the rationale of adenoviral vector-mediated gene transfer for future gene therapy. An adenoviral vector expressing bacterial LacZ (AdCALacZ) was injected into the eyes of adult rats either intravitreally (group A) or subretinally (group B), and the gene expression and retinal function were thus examined at different time points after gene transfer for 3 weeks. X-Gal histostaining showed that neural retinal cells were transfected in group A and that retinal pigment epithelial cells were transfected in group B. The gene transfer was more efficient in group B (54.4% of the fixed retinal area was stained) than in group A (10.4%). The electroretinogram (ERG) revealed retinal dysfunction in the AdCALacZ-transfected rats even at the stage in which the histological damage was not apparent by electron microscopy and immunohistochemical studies for cytokeratin, S-100 protein, and glial fibrillary acidic protein. The ERG change was correlated with the intensity of inflammation, and retinal function recovered to the original level by 3 weeks, along with a diminution of inflammation. Functional changes were more evident in eyes treated with AdCALacZ than in those infected with adenoviral vector with no exogenous gene; however, no histological difference was observed between these groups, indicating that the insertion of exogenous gene itself affects retinal function. The results showed that different kinds of retinal cells could be gene-transferred by an adenoviral vector, depending on the application method. The retinal dysfunction caused by each adenoviral transfection method was caused by inflammation and the insertion of exogenous gene, and this retinal dysfunction was recoverable. In future gene therapy, special attention should be given to the method of exogenous gene insertion in the retina.