Defects in the gene encoding carboxypeptidase E (CPE) in either mouse or human lead to multiple endocrine disorders, including obesity and diabetes. Recent studies on Cpe-/- mice indicated neurological deficits in these animals. As a model system to study the potential role of CPE in neurophysiology, we carried out electroretinography (ERG) and retinal morphological studies on Cpe-/- and Cpe fat/fat mutant mice. Normal retinal morphology was observed by light microscopy in both Cpe-/- and Cpe(fat/fat) mice. However, with increasing age, abnormal retinal function was revealed by ERG. Both Cpe-/- and Cpe fat/fat animals had progressively reduced ERG response sensitivity, decreased b-wave amplitude and delayed implicit time with age, while maintaining a normal a-wave amplitude. Immunohistochemical staining showed specific localization of CPE in photoreceptor synaptic terminals in wild-type (WT) mice, but in both Cpe-/- and Cpe fat/fat mice, CPE was absent in this layer. Bipolar cell morphology and distribution were normal in these mutant mice. Electron microscopy of retinas from Cpe fat/fat mice revealed significantly reduced spherule size, but normal synaptic ribbons and synaptic vesicle density, implicating a reduction in total number of vesicles per synapse in the photoreceptors of these animals. These results suggest that CPE is required for normal-sized photoreceptor synaptic terminal and normal signal transmission to the inner retina.