Methylglyoxal (MG) is an important precursor for AGEs. Normally, MG is detoxified by the glyoxalase (GLO) enzyme system (including component enzymes GLO1 and GLO2). Enhanced glycolytic metabolism in many cells during diabetes may overpower detoxification capacity and lead to AGE-related pathology. Using a transgenic rat model that overexpresses GLO1, we investigated if this enzyme can inhibit retinal AGE formation and prevent key lesions of diabetic retinopathy. Transgenic rats were developed by overexpression of full length GLO1. Diabetes was induced in wild-type (WT) and GLO1 rats and the animals were killed after 12 or 24 weeks of hyperglycaemia. N ε-(Carboxyethyl)lysine (CEL), N ε-(carboxymethyl)lysine (CML) and MG-derived-hydroimidazalone-1 (MG-H1) were determined by immunohistochemistry and by ultra-performance liquid chromatography tandem mass spectrometry (UPLC-MSMS). Müller glia dysfunction was determined by glial fibrillary acidic protein (GFAP) immunoreactivity and by spatial localisation of the potassium channel Kir4.1. Acellular capillaries were quantified in retinal flat mounts. GLO1 overexpression prevented CEL and MG-H1 accumulation in the diabetic retina when compared with WT diabetic counterparts (p < 0.01). Diabetes-related increases in Müller glial GFAP levels and loss of Kir4.1 at the vascular end-feet were significantly prevented by GLO1 overexpression (p < 0.05) at both 12- and 24-week time points. GLO1 diabetic animals showed fewer acellular capillaries than WT diabetic animals (p < 0.001) at 24 weeks’ diabetes. Detoxification of MG reduces AGE adduct accumulation, which, in turn, can prevent formation of key retinal neuroglial and vascular lesions as diabetes progresses. MG-derived AGEs play an important role in diabetic retinopathy.