Hepcidin is a hormone central to the regulation of iron homeostasis in the body. It is believed to be produced exclusively by the liver. Ferroportin, an iron exporter, is the receptor for hepcidin. This transporter/receptor is expressed in Müller cells, photoreceptor cells and the RPE (retinal pigment epithelium) within the retina. Since the retina is protected by the retinal-blood barriers, we asked whether ferroportin in the retina is regulated by hepcidin in the circulation or whether the retina produces hepcidin for regulation of its own iron homeostasis. Here we show that hepcidin is expressed robustly in Müller cells, photoreceptor cells and RPE cells, closely resembling the expression pattern of ferroportin. We also show that bacterial LPS (lipopolysaccharide) is a regulator of hepcidin expression in Müller cells and the RPE, both in vitro and in vivo, and that the regulation occurs at the transcriptional level. The action of LPS on hepcidin expression is mediated by the TLR4 (Toll-like receptor-4). The upregulation of hepcidin by LPS occurs independent of Hfe (human leukocyte antigen-like protein involved in Fe homeostasis). The increase in hepcidin levels in retinal cells in response to LPS treatment is associated with a decrease in ferroportin levels. The LPS-induced upregulation of hepcidin and consequent down-regulation of ferroportin is associated with increased oxidative stress and apoptosis within the retina in vivo. We conclude that retinal iron homeostasis may be regulated in an autonomous manner by hepcidin generated within the retina and that chronic bacterial infection/inflammation of the retina may disrupt iron homeostasis and retinal function.