Previous studies evaluating neural stem cells transplanted into the mature retina have demonstrated limited levels of graft-host integration and photoreceptor differentiation. The purpose of this investigation is to enhance photoreceptor cell differentiation and integration of retinal progenitor cells (RPC) following subretinal transplantation into retinal degenerate rats by optimization of isolation, expansion, and transplantation procedures. RPCs were isolated from human placental alkaline phosphatase (hPAP)-positive embryonic day 17 (E17) rat retina and expanded in serum-free defined media. RPCs at passage 2 underwent in vitro induction with all trans retinoic acid or were transplanted into the subretinal space of post-natal day (P) 17 S334ter-3 and S334ter-5 transgenic rats. Animals were examined post-operatively by ophthalmoscopy and optical coherence tomography (OCT) at weeks 1 and 4. Differentiation profiles of RPCs, both in vitro and in vivo were analysed microscopically by immunohistochemistry for various retinal cell specific markers. Our results demonstrated that the majority of passage 2 RPCs differentiated into retina-specific neurons expressing rhodopsin after in vitro induction. Following subretinal transplantation, grafted cells formed a multi-layer cellular sheet in the subretinal space in both S334ter-3 and S334ter-5 rats. Prominent retina-specific neuronal differentiation was observed in both rat lines as evidenced by recoverin or rhodopsin staining in 80% of grafted cells. Less than 5% of the grafted cells expressed glial fibrillary acidic protein. Synapsin-1 (label for nerve terminals) positive neural processes were present at the graft-host interface. Expression profiles of the grafted RPCs were similar to those of RPCs induced to differentiate in vitro using all-trans retinoic acid. In contrast to our previous study, grafted RPCs can demonstrate extensive rhodopsin expression, organize into layers, and show some features of apparent integration with the host retina following subretinal transplantation in slow and fast retinal degenerate rats. The similarity of the in vitro and in vivo RPC differentiation profiles suggests that intrinsic signals may have a significant contribution to RPC cell fate determination.