The retina is a relatively simple and well-characterized CNS structure in which cell-cell interactions have been hypothesized to influence cell type determination. By manipulating cell density in serum-free cultures we show that rat rod photoreceptor development requires a diffusible activity produced by neonatal retinal cells. This effect is not mediated by changes in cell survival or mitosis. Production of the rod promoting activity varies with developmental stage and is temporally correlated with the timing of rod generation in vivo. In low density cultures, which do not support rod development, an increased fraction of cells stain with an antibody specific for another retinal neuron, the bipolar cell. Thus, the diffusible rod promoting activity may influence cell fate determination, and not only terminal differentiation. These results provide an approach for the molecular characterization of developmentally important signals in the vertebrate retina.