To identify and characterize the lineage potential of rat neural retina progenitor cells (NRPCs) in vitro and engrafted into rats with retinal degeneration, NRPCs were isolated from neural retinas of embryonic day 17 Long Evans rats and cultured in serum-free or serum-containing media with fibroblast growth factor 2 and neurotrophin 3. After expansion, cellular differentiation was initiated by the withdrawal of these growth factors. Despite forming primary neurospheres, NRPCs cultured in serum-free medium survived poorly after passage. In contrast, NRPCs cultured in serum-containing medium could be expanded for up to 12 passages and differentiated into glial fibrillary acidic protein-positive glial cells and retina-specific neurons expressing rhodopsin, S-antigen, calbindin, recoverin, and calretinin. For in vivo analysis, passage 1 (P1) undifferentiated NRPCs were labeled with bromodeoxyuridine (BrdU), implanted into the subretinal space of Royal College of Surgeons (RCS) rats, and analyzed immunohistochemically 4 weeks postgrafting. The grafted NRPCs showed extensive glial differentiation, irrespective of their topographic localization. A few BrdU-labeled grafted NRPCs expressed protein kinase C, a marker for bipolar and amacrine interneuron-specific differentiation. Other retina-specific or oligodendrocytic differentiation was not detected in the grafted cells. Although NRPCs are capable of self-renewal and multilineage differentiation in vitro, they developed mostly into glial cells following engraftment into the adult retina. These data suggest that the adult retina retains epigenetic signals that are either restrictive for neuronal differentiation or instructive for glial differentiation. Induction of lineage-specific cell differentiation of engrafted NRPCs to facilitate retinal repair will likely require initiation of specific differentiation in vitro prior to grafting and/or modification of the host environment concomitantly with NRPC grafting.