The retina modulates its light sensitivity depending on the mean ambient illumination in order to match the limited dynamic range of its circuitry to the large diurnal variations in mean light level. Here we report that retinal processing is also controlled by temporal contrast, that is the range of intensity fluctuations around the mean. Isolated tiger salamander retinae were stimulated with spatially uniform Gaussian flicker and ganglion cell spike trains were recorded extracellularly using a multielectrode array. Following a contrast increase at constant mean intensity, the firing rate of most ganglion cells increased sharply, then decreased several-fold with a time constant of 5-10 s. Recovery of the firing rate following a decrease in contrast was 2 to 3 times slower. What is the purpose of this type of contrast adaptation? We tested its effects on the transmission of visual information by the ganglion cells. A linear decoding algorithm was used to estimate the information individual spike trains convey about the flicker stimulus. Following a contrast increase, the information per spike increased in the course of adaptation, while the information rate per unit time decreased due to the drop in the firing rate. This indicates that the retina does not adapt to optimize the total information transfer under the conditions of our experiments. Other possibilities will be discussed.