The clinical and pathological findings of 58 patients with diabetes mellitus were reviewed. Sixteen patients who did not have diabetes served as controls. Attention was directed towards the presence of cytoid bodies in the nerve fiber layer of the retina (the pathological equivalent of the cotton wool spot).In paraffin embedded tissue of the diabetic group, cytoid bodies, without demonstrable vascular occlusion, was observed in 35 patients. In contrast, lipid stains of trypsin digested retina demonstrated lipid occlusion of arterioles, precapillary arterioles and/or capillaries in 29 of the 35. In 17 of the 29, lipid occlusion was also noted in gelatin embedded whole retina. Particularly striking was the observation that 10 of the 17 disclosed the presence of cytoid bodies at the same site as the lipid occluded blood vessel.This data indicates that lipid occlusion plays an important role in the production of the cotton wool spot in diabetic retinopathy.