Diabetic retinopathy (DR) is a common neurovascular complication of type 1 diabetes. Current therapeutics target neovascularization characteristic of end-stage disease, but are associated with significant adverse effects. Targeting early events of DR such as neurodegeneration may lead to safer and more effective approaches to treatment. Two independent prospective clinical trials unexpectedly identified that the PPARα agonist fenofibrate had unprecedented therapeutic effects in DR, but gave little insight into the physiological and molecular mechanisms of action. The objective of the present study was to evaluate potential neuroprotective effects of PPARα in DR, and subsequently to identify the responsible mechanism of action. Here we reveal that activation of PPARα had a robust protective effect on retinal function as shown by Optokinetic tracking in a rat model of type 1 diabetes, and also decreased retinal cell death, as demonstrated by a DNA fragmentation ELISA. Further, PPARα ablation exacerbated diabetes-induced decline of visual function as demonstrated by ERG analysis. We further found that PPARα improved mitochondrial efficiency in DR, and decreased ROS production and cell death in cultured retinal neurons. Oxidative stress biomarkers were elevated in diabetic Pparα-/- mice, suggesting increased oxidative stress. Mitochondrially mediated apoptosis and oxidative stress secondary to mitochondrial dysfunction contribute to neurodegeneration in DR. Taken together, these findings identify a robust neuroprotective effect for PPARα in DR, which may be due to improved mitochondrial function and subsequent alleviation of energetic deficits, oxidative stress and mitochondrially mediated apoptosis.