Intracellular electrophysiological recording techniques were utilized to investigate the possible function of retinal melatonin in the larval tiger salamander. Endogenous retinal melatonin was present and appeared to bind a membrane-enriched fraction of the salamander retina, as determined by radioimmunoassay and receptor binding studies. Melatonin added through the perfusion bath to flat-mounted retinas resulted in a horizontal cell (HC) hyperpolarization of 10-20 mV. Additionally, the amplitude of HC responses to short test flashes increased in the presence of melatonin. Voltage-intensity plots revealed that application of 500 microM of melatonin caused an increase of the HC light sensitivity and this effect was reversible. These results suggest that melatonin synthesized and released during the dark period of the diurnal cycle may alter the sensitivity of second-order neurons at a time of day when photopic input is at its lowest level.