OBJECTIVES: Progressive vision loss caused by retinopathy is a common and debilitating effect of diabetes. Standardized descriptions of the functional impacts of diabetic retinopathy are required to develop health state descriptions for eliciting utilities. The objective was to characterize the functional impacts of diabetic retinopathy according to levels of visual function, informing relevant health states in diabetic retinopathy. METHODS: A list of potentially important impacts was developed from the literature and the National Eye Institute Visual Function Questionnaire (VFQ). One-on-one qualitative interviews were then conducted with 30 subjects with diabetic retinopathy to solicit feedback on functional and activity limitations. All participants underwent Early Treatment of Diabetic Retinopathy Study visual acuity and contrast sensitivity testing. A thematic analysis characterized the nature and drivers of functional limitations in diabetic retinopathy. Health state descriptions using these parameters were developed and reviewed by three ophthalmologists and one endocrinologist. RESULTS: Qualitative interviewing identified that visual acuity and contrast sensitivity in the better- and worse-seeing eyes, the difference in these measures between the eyes, and the ability to drive were important determinants of health status. These status indicators were highly associated with participation in leisure activities; reading fine print (important for maintaining glycemic control when reading nutritional labels or glucometers); seeing well at a distance; and mobility outside the home. Functional limitations less useful in distinguishing between individuals with different visual functioning levels included watching television and needing help from others. Eleven unique health states, defined by visual acuity, contrast sensitivity, and VFQ scores, were then developed which can be used for estimating vision-related utilities in diabetic retinopathy. CONCLUSIONS: This is the first study to categorize the vision-specific functional impacts of diabetic retinopathy according to measures of vision function. Measuring health state utilities for diabetic retinopathy is now feasible using these health state descriptions.