Retinal angiogenesis, neural dysfunction, and microglial activation occur in both humans with retinopathy of prematurity and in animal models of the disease. The aim of this study was to assess whether blockade of the renin-angiotensin system ameliorated these effects in rats with oxygen induced retinopathy (OIR). Sprague-Dawley rats were treated with 80% oxygen from birth to postnatal day (P)11 and were then placed in normal air until experimentation at P18, while control animals remained in normal air. Control and OIR rats were treated with the angiotensin II type 1 receptor (AT1 receptor) antagonist, valsartan (4, 10, or 40 mg/kg daily, intraperitoneally). Retinal function was assessed using the twin-flash electroretinogram and immunocytochemistry was used to evaluate vascular change and microglial activation. Oxygen-induced retinopathy was associated with growth of blood vessels into the vitreous in the peripheral retina, increased microglial number, and activation and a reduction in both rod and cone pathway function. Although treatment with valsartan reduced growth of vessels into the vitreous, it also reduced the formation of the deep vascular plexus. Valsartan treatment reduced microglial number and activation; however, it did not ameliorate neural dysfunction. At the highest dose examined, valsartan treatment reduced photoreceptor and inner retinal function in both the control and OIR animals. Valsartan was effective in reducing physiological and pathological angiogenesis and the microglial inflammatory response, indicating a role for the AT1 receptor in these processes, but it did not prevent retinal dysfunction. More work is needed to better understand the mechanisms underlying neuronal dysfunction in oxygen-induced retinopathy.