Although retinal bipolar cells represent a morphologically well defined population of retinal interneurons, very little is known about the developmental mechanisms that regulate their processing. Furthermore, the identity of specific bipolar cell types that function in distinct visual circuits remains poorly understood. Here, we show that the homeobox gene Vsx1 is expressed in Type 7 ON bipolar cells. In the absence of Vsx1, Type 7 bipolar cells exhibit proper morphological specification but show defects in terminal gene expression. Vsx1 is required for the repression of bipolar cell-specific markers, including Calcium-binding protein 5 and Chx10. This contrasts its genetic requirement as an activator of gene expression in OFF bipolar cells. To assess possible ON signaling defects in Vsx1-null mice, we recorded specifically from ON-OFF directionally selective ganglion cells (DSGCs), which cofasciculate with Type 7 bipolar cell terminals. Vsx1-null ON-OFF DSGCs received more sustained excitatory synaptic input, possibly due to Type 7 bipolar cell defects. Interestingly, in Vsx1-null mice, the directionally selective circuit is functional but compromised. Together, these findings indicate that Vsx1 regulates terminal gene expression in Type 7 bipolar cells and is necessary for proper ON visual signaling within a directionally selective circuit.