The retinal pigment epithelium (RPE) is essential for eye development by interacting with the overlaying neuroepithelium. Regulatory sequences of the gene encoding for tyrosinase-related protein 1 (TRP- 1), linked to the lacZ reporter gene, lead to strong and specific beta- galactosidase expression in the RPE. We asked how the oncogene ret would affect this epithelial cell type during mouse development. We used the TRP-1 promoter to express ret in the developing RPE, and obtained transgenic mouse lines, which showed mild to severe microphthalmia. During development, the RPE changed to a stratified epithelium with reduced or absent pigmentation from E10.5 onward. In addition, proliferation of RPE cells and tumor formation were observed from E12.5 onward. These early events prevent closure of choroid fissure and lead to microphthalmia and secondary malformations after birth. We conclude that ret transgene expression in the RPE prevents normal differentiation of this epithelial layer and induces proliferation and tumor formation. The appearance of the microphthalmic phenotype underlines the requirement of a normally developed RPE for eye development.