Despite evidence that hyperactivity of the vasodeleterious axis (ACE/angiotensin II (Ang II)/AT1 receptor) of the renin-angiotensin system (RAS) is associated with the pathogenesis of diabetic retinopathy (DR) use of the inhibitors of this axis has met with limited success in the control of this pathophysiology. We investigated the hypothesis that enhancing the local activity of the recently established protective axis of the RAS, ACE2/Ang-(1-7), using adeno-associated virus (AAV)-mediated gene delivery of ACE2 or Ang-(1-7) would confer protection against diabetes-induced retinopathy. Genes expressing ACE2 and Ang-(1-7) were cloned in AAV vector. The effects of ocular AAV-ACE2/Ang-(1-7) gene transfer on DR in diabetic eNOS(-/-) mice and Sprague-Dawley (SD) rats were examined. Diabetes was associated with approximately tenfold and greater than threefold increases in the ratios of ACE/ACE2 and AT1R/Mas mRNA levels in the retina respectively. Intraocular administration of AAV-ACE2/Ang-(1-7) resulted in significant reduction in diabetes-induced retinal vascular leakage, acellular capillaries, infiltrating inflammatory cells and oxidative damage in both diabetic mice and rats. Our results demonstrate that DR is associated with impaired balance of retinal RAS. Increased expression of ACE2/Ang-(1-7) overcomes this imbalance and confers protection against DR. Thus, strategies enhancing the protective ACE2/Ang-(1-7) axis of RAS in the eye could serve as a novel therapeutic target for DR.