We have studied the role of the hypoxia-inducible angiogenic growth factor vascular endothelial growth factor (VEGF) in the induction and control of vessel growth in the developing retina of rats and cats, using in situ hybridization techniques. VEGF is expressed successively in two layers of neural retina, the innermost (axon) layer and the inner nuclear layer (INL). In the axon layer, VEGF is expressed transiently by astrocytes as they spread across the layer, closely preceding the formation of superficial vessels. In the INL, VEGF is expressed transiently by somas at the middle of the layer (presumably Muller cells), closely preceding the formation of the deep layer of retinal vessels. We propose that hypoxia caused by the onset of neuronal activity is detected by strategically located populations of neuroglia, first astrocytes, then Muller cells. In response they secrete VEGF, inducing formation of the superficial and deep layers of retinal vessels, respectively. As the vessels become patent, they relieve the hypoxic stimulus, so vessel formation is matched to oxygen demand. This hypothesis was tested experimentally in three ways. Expression of the high affinity flk-1 receptor for VEGF was demonstrated in newly formed retinal vessels, confirming that the secreted VEGF acts on the vessels, in a paracrine fashion. Direct hypoxic regulation of VEGF expression by macroglia was demonstrated in primary cultures of astrocytes and in cells of a glioma line. Hypoxic regulation of VEGF expression in the intact developing retina was demonstrated by showing that oxygen-enriched atmospheres that inhibit vessel formation also suppress endogenous VEGF production.