A neurotrophic factor that supports the development of cholinergic retinal neurons was purified from media conditioned by a primary culture of embryonic hippocampal neurons. Retinal choline acetyltransferase (ChAT), which is located exclusively in amacrine cells, served as a marker for the development of retinal cholinergic neurons. In a serum-free control culture, retinal neurons from 17-day-old rat fetus displayed little increase in the enzyme activity and a low proportion of neurite-bearing cells (15-20%) within 7 days. The conditioned media, when added to the retinal neuron culture, dose-dependently increased ChAT activity and the number of neurite-bearing cells (40-60%), the maximum ChAT activity being approximately sixfold higher than that in the control. The fraction with these stimulatory activities was purified by Sephadex G-15 column chromatography and two times reverse-phase HPLC. The final fraction showed approximately 3,000-fold higher purification as compared with that in the Sephadex G-15 fraction. Gas-phase protein sequencing analysis of the final fraction yielded a peptide sequence: Tyr-Leu-Leu-Pro-Ala-Gln-Val-Asn-Ile-Asp. A synthetic peptide with this sequence dose-dependently stimulated ChAT activity in the retinal cell culture and dissociated cell culture of the septal nucleus. These findings suggest that the developing hippocampal neurons produce a neurotrophic peptide that stimulates the development of cholinergic neurons.