Transplantation of dissociated retinal epithelial cells obtained from the retinas of normal, congenic pigmented strain of rats to Bruch's membrane and the subretinal space of dystrophic rats from the Royal College of Surgeon (RCS) strain can prevent photoreceptor cell degeneration in this retina for at least 4 months after transplantation. Host and transplant cells form close apposition with one another but can be distinguished by the presence of both phagosomes and melanin granules in the transplant and the absence of these inclusions in the host retinal epithelium. Transplanted cells show excessive amounts of phagosomal material within 48 hr after transplantation, implying that restoration of phagocytosis is responsible for the photoreceptor survival.