Stem cell therapy may replace lost photoreceptors and preserve residual photoreceptors during retinal degeneration (RD). Unfortunately, the degenerative microenvironment compromises the fate of grafted cells, demanding supplementary strategies for microenvironment regulation. Donor cells with both proper regeneration capability and intrinsic ability to improve microenvironment are highly desired. Here, we use cell surface markers (C-Kit+/SSEA4-) to effectively eliminate tumorigenic embryonic cells and enrich retinal progenitor cells (RPCs) from human embryonic stem cell (hESC)-derived retinal organoids, which, following subretinal transplantation into RD models of rats and mice, significantly improve vision and preserve the retinal structure. We characterize the pattern of integration and materials transfer following transplantation, which likely contribute to the rescued photoreceptors. Moreover, C-Kit+/SSEA4- cells suppress microglial activation, gliosis and the production of inflammatory mediators, thereby providing a healthier host microenvironment for the grafted cells and delaying RD. Therefore, C-Kit+/SSEA4- cells from hESC-derived retinal organoids are a promising therapeutic cell source.