Bactericidal/permeability-increasing protein (BPI) was originally identified as a lipopolysaccharide (LPS) binding protein with gram-negative bactericidal activity in the leukocytes. In this study, we characterized the previously unknown effects of BPI in the eye and the molecular mechanisms involved in its action. BPI mRNA was detected in bovine retina; retinal pigment epithelium; and primary cultures of bovine retinal pigment epithelial cells (RPE), pericytes (RPC), and endothelial cells (REC); while BPI protein was measured in human vitreous and plasma. BPI, but not control protein thaumatin, activated extracellular regulated kinase (ERK) and AKT, and increased DNA synthesis in RPE and RPC but not in REC. A human recombinant 21 kDa modified amino-terminal fragment of BPI (rBPI21) reduced H2O2-induced apoptosis in RPE and inhibited vascular endothelial growth factor (VEGF)-stimulated ERK phosphorylation in REC when preincubated with VEGF. Intraperitoneal (i.p.)-injected rBPI21 reduced ischemia-induced retinal neovascularization and diabetes-induced retinal permeability. Since BPI has unusual dual properties of promoting RPC and RPE growth while suppressing VEGF-induced REC growth and vascular permeability, the mechanistic understanding of BPI's action may provide novel therapeutic opportunities for diabetic retinopathy and age-related macular degeneration.