The aim of this study was to determine whether inner retinal dysfunction in diabetic rats is correlated with structural and/or biochemical changes in the retina and optic nerve. Using the electroretinogram (ERG; -5.83 to 1.28 log cd.s.m(-2)) retinal function (photoreceptor, bipolar, amacrine and ganglion cell components) was measured in control (n=13; citrate buffer) and diabetic (n=13; streptozotocin, STZ, 50 mg kg(-1)) rats, 12 weeks following treatment. Retinae and optic nerves were analyzed for structural changes and retinae were assessed for alterations in growth factor/cytokine expression using quantitative real-time PCR. We found that phototransduction efficiency was reduced 12 weeks after STZ-induced diabetes (-30%), leading to reduced amplitude of ON-bipolar (-18%) and amacrine cell (-29%) dominated responses; ganglion cell dysfunction (-84%) was more profound. In the optic nerve, nerve fascicle area and myelin sheath thickness were reduced (p<0.05), whereas the ratio of blood vessels and connective tissue to total nerve cross-sectional area was increased (p<0.05) in diabetic compared to control rats. In the retina, connective tissue growth factor (CTGF), transforming growth factor beta, type 2 receptor (TGFbeta-r2) mRNA and platelet-derived growth factor B (PDGF-B) mRNA were increased (p<0.035). Reduced ganglion cell function was correlated with increased CTGF and TGFbeta-r2, but not PDGF-B mRNA. In summary, the ganglion cell component exhibited the greatest level of dysfunction within the ERG components examined after 12 weeks of STZ-induced diabetes; the level correlated with increased CTGF and TGFbeta-r2 mRNA, but not with gross morphological changes in the retina or optic nerve.