Cultured pigment epithelial cells of the fetal human retina secrete a protein, pigment epithelium-derived factor (PEDF), that induces a neuronal phenotype in cultured human retinoblastoma cells. Morphological changes include the induction of an extensive neurite meshwork and the establishment of corona-like cellular aggregates surrounding a central lumen. The differentiated cells also show increases in the expression of neuron-specific enolase and the 200-kDa neurofilament subunit. Amino acid and DNA sequence data demonstrate that PEDF belongs to the serine protease inhibitor (serpin) family. The PEDF gene contains a typical signal-peptide sequence, initiator methionine codon, and polyadenylylation signal and matches the size of other members of the serpin superfamily (e.g., alpha 1-antitrypsin). It lacks homology, however, at the putative serpin reactive center. Thus, PEDF could exert a paracrine effect in the embryonic retina, influencing neuronal differentiation by a mechanism that does not involve classic inhibition of serine protease activity.