Abstract Background Alteration of retinal angiogenesis during development leads to retinopathy of prematurity (ROP) in preterm infants, which is a leading cause of visual impairment in children. A number of clinical studies have reported higher rates of ROP in infants who had perinatal infections or inflammation, suggesting that exposure of the developing retina to inflammation may disturb retinal vessel development. Thus, we investigated the effects of systemic inflammation on retinal vessel development and retinal inflammation in neonatal rats. Methods To induce systemic inflammation, we intraperitoneally injected 100 μl lipopolysaccharide (LPS, 0.25 mg/ml) or the same volume of normal saline in rat pups on postnatal days 1, 3, and 5. The retinas were extracted on postnatal days 7 and 14, and subjected to assays for retinal vessels, inflammatory cells and molecules, and apoptosis. Results We found that intraperitoneal injection of LPS impaired retinal vessel development by decreasing vessel extension, reducing capillary density, and inducing localized overgrowth of abnormal retinal vessels and dilated peripheral vascular ridge, all of which are characteristic findings of ROP. Also, a large number of CD11c + inflammatory cells and astrocytes were localized in the lesion of abnormal vessels. Further analysis revealed that the number of major histocompatibility complex (MHC) class II lo CD68 lo CD11b lo CD11c hi cells in the retina was higher in LPS-treated rats compared to controls. Similarly, the levels of TNF-α, IL-1β, and IL-12a were increased in LPS-treated retina. Also, apoptosis was increased in the inner retinal layer where retinal vessels are located. Conclusions Our data demonstrate that systemic LPS-induced inflammation elicits retinal inflammation and impairs retinal angiogenesis in neonatal rats, implicating perinatal inflammation in the pathogenesis of ROP.