OBJECTIVE - Alterations in retinal vascular caliber may reflect early subclinical microvascular dysfunction. In this study, we examined the association of retinal vascular caliber to incident retinopathy in young patients with type 1 diabetes. RESEARCH DESIGN AND METHODS - This was a prospective cohort study of 645 initially retinopathy-free type 1 diabetic patients, aged 12-20 years. Participants had seven-field stereoscopic retinal photographs taken of both eyes at baseline and follow-up. Retinal vascular caliber was measured from baseline photographs using a computer-based program following a standardized protocol. Incident retinopathy was graded according to the modified Airlie House classification from follow-up photographs. RESULTS - Over a median follow-up of 2.5 years, 274 participants developed retinopathy (14.8 per 100 person-years). After adjustments for age, sex, diabetes duration, glycemia, mean arterial blood pressure, BMI, and cholesterol levels, larger retinal arteriolar caliber (fourth versus first quartile) was associated with a more than threefold higher risk of retinopathy (hazard rate ratio 3.44 [95% CI 2.08-5.66]). Each SD increase in retinal arteriolar caliber was associated with a 46% increase in retinopathy risk (1.46 [1.22-1.74]). This association was stronger in female than in male participants. After similar adjustments, retinal venular caliber was not consistently associated with incident retinopathy. CONCLUSIONS - Retinal arteriolar dilatation predicts retinopathy development in young patients with type 1 diabetes. Our data suggest that arteriolar dysfunction may play a critical role in the pathogenesis of early diabetic retinopathy and that computer-based retinal vascular caliber measurements may provide additional prognostic information regarding risk of diabetes micro-vascular complications.