Changes in retinal vascular caliber may reflect subclinical microvascular disease and provide prognostic information regarding risk of retinopathy. In this study, we examined the prospective association of retinal vascular caliber with retinopathy risk in an Australian population-based cohort. A total of 906 participants without retinopathy at baseline had retinal vascular caliber measured from photographs and were followed-up for 5 years for incident retinopathy. After adjusting for age, sex, systolic blood pressure, A1C, and other risk factors, individuals with wider retinal arteriolar caliber (widest 25% vs. the remaining three-quarters of the population) were more likely to develop incident retinopathy (odds ratio 4.79 [95% CI 1.57-14.58]). This association was not significant in individuals without diabetes. Venular caliber did not predict incident retinopathy. Our findings suggest that retinal arteriolar dilatation is a specific sign of diabetic microvascular dysfunction and may be a preclinical marker of diabetic retinopathy.