Neurosteroids, such as progesterone, influence central nervous system development and function by regulating a broad spectrum of physiological processes. Here, we investigated membrane‐initiated actions of progesterone in the retina and identified the membrane‐associated progesterone receptor component 1 (PGRMC1). We found PGRMC1 expressed mainly in retinal Muller glia (RMG) and retinal pigment epithelium, and localized uniquely to microsomal and plasma membrane fractions. In RMG, membrane‐impermeable progesterone conjugate induced calcium influx and subsequent phosphatidylinositol 3‐kinase‐mediated phosphorylation of PKC and ERK‐1/2. Induction by progesterone also led to PKC‐dependent activation of VEGF gene expression and protein synthesis, suggesting a contribution of membrane‐initiated hormone effects to VEGF induced neovascularization within retina. © 2007 Wiley‐Liss, Inc.