Pharmacologic treatment of diabetic retinopathy via eyedrops could have advantages but has not been successful to date. We explored the effect of topical Nepafenac, an anti-inflammatory drug known to reach the retina when administered via eyedrops, on the development of early stages of diabetic retinopathy and on metabolic and physiologic abnormalities that contribute to the retinal disease. Streptozotocin-induced diabetic rats were assigned to three groups (0.3% Nepafenac eyedrops, vehicle eyedrops, and untreated control) for comparison to age-matched nondiabetic control animals. Eyedrops were administered in both eyes four times per day for 2 and 9 months. At 2 months of diabetes, insulin-deficient diabetic control rats exhibited significant increases in retinal prostaglandin E(2), superoxide, vascular endothelial growth factor (VEGF), nitric oxide (NO), cyclooxygenase-2, and leukostasis within retinal microvessels. All of these abnormalities except NO and VEGF were significantly inhibited by Nepafenac. At 9 months of diabetes, a significant increase in the number of transferase-mediated dUTP nick-end labeling-positive capillary cells, acellular capillaries, and pericyte ghosts were measured in control diabetic rats versus nondiabetic controls, and topical Nepafenac significantly inhibited all of these abnormalities (all P < 0.05). Diabetes-induced activation of caspase-3 and -6 in retina was partially inhibited by Nepafenac (all P < 0.05). Oscillatory potential latency was the only abnormality of retinal function reproducibly detected in these diabetic animals, and Nepafenac significantly inhibited this defect (P < 0.05). Nepafenac did not have a significant effect on diabetes-induced loss of cells in the ganglion cell layer or in corneal protease activity. Topical ocular administration of Nepafenac achieved sufficient drug delivery to the retina and diabetes-induced alterations in retinal vascular metabolism, function, and morphology were inhibited. In contrast, little or no effect was observed on diabetes-induced alterations in retinal ganglion cell survival. Local inhibition of inflammatory pathways in the eye offers a novel therapeutic approach toward inhibiting the development of lesions of diabetic retinopathy.