Perivascular glial cells are thought to be involved in physiologic vascularization and also in pathologic angiogenesis in the central nervous system. We have previously shown that astrocytes are a source of transforming growth factor-beta (TGF-beta) and another inhibiting factor, which block endothelial cell growth and induce their apoptosis. Astroglia are also known to express vascular endothelial growth factor (VEGF), which is up-regulated during hypoxia. Here we demonstrate the effects of hypoxia on the expression of both TGF-beta and VEGF by retinal glial cells. Muller cells isolated from rat retina were incubated under hypoxia or normoxia and the resulting conditioned media (H-MCM and N-MCM) were assayed for their effects on growth of bovine retinal capillary endothelial (BRE) and the TGF-beta-sensitive mink lung epithelial CCL cells. The expression and quantities of VEGF and TGF-beta (active vs. latent form) were determined by immuno-adsorption, Western or Northern blotting, and ELISA. N-MCM stimulated BRE cell growth by twofold but inhibited CCL cells under similar assay conditions, whereas H-MCM had a weak stimulating effect on BRE and substantial inhibitory activity on CCL cells. Adsorption of MCM by specific antibodies as well as Western and Northern blot analysis indicated that stimulating and inhibitory activities of MCM are due to the presence of VEGF and TGF-beta, respectively. ELISA revealed that the hypoxia condition converts latent TGF-beta into its active form. In N-MCM, TGF-beta is found predominantly in the latent form, but in hypoxia MCM it is mainly active. Furthermore, it was found that treatment of Muller cells with exogenous TGF-beta under either hypoxia or normoxia increases VEGF expression in a time- and dose-dependent fashion. TGF-beta activation may, therefore, be prerequisite for hypoxia-induced up-regulation of VEGF and stimulation of angiogenesis in vivo.