The cellular organization of the opisthobranch retina is of interest since the eyes of several of these molluscs express circadian rhythms in optic nerve impulse frequency. In a model for retinal organization proposed by Audesirk, photoreceptors make electrical contacts with higher order cells which generate the compound action potential (CAP) recorded in the optic nerve. However, using micro-illumination on selected retinal regions, we now find that cells near the base of the retina are responsible for light transduction leading to CAPs. Illumination of the distal segments of photoreceptors surrounding the lens generates low-amplitude unitary activity in the optic nerve without CAPs. Furthermore, illumination of this region leads to inhibition of spontaneous CAPs or those generated by illumination of the retinal base. This inhibition is blocked by high magnesium-low calcium solutions and thus we conclude that inhibition and a secretory step comprise at least part of the pathway between the photoreceptor layer and neurons giving rise to the CAP.