Melatonin has been traditionally considered to be derived principally from the pineal gland. However, several investigations have now demonstrated that melatonin synthesis occurs also in the retina (and in other organs as well) of several vertebrate classes, including mammals. As in the pineal, melatonin synthesis in the retina is elevated at night and reduced during the day. Since melatonin receptors are present in the retina and retinal melatonin does not contribute to the circulating levels, retinal melatonin probably acts locally as a neuromodulator. Melatonin synthesis in the retinas of mammals is under control of a circadian oscillator located within the retina itself, and circadian rhythms in melatonin synthesis and/or release have been described for several species of rodents. These rhythms are present in vivo, persist in vitro, are entrained by light, and are temperature compensated. The recent cloning of the gene responsible for the synthesis of the enzyme arylalkylamine N-acetyltransferase (the only enzyme unique to the melatonin synthetic pathway) will facilitate localizing the cellular site of melatonin synthesis in the retina and investigating the molecular mechanism responsible for the generation of retinal melatonin rhythmicity. Melatonin has been implicated in many retinal functions, and the levels of melatonin and dopamine appear to regulate several aspects of retinal physiology that relate to light and dark adaptation. In conclusion, it seems that retinal melatonin is involved in several functions, but its precise role is yet to be understood.