Chronic retinal inflammation in the form of activated microglia and macrophages are implicated in the etiology of neurodegenerative diseases of the retina, including age-related macular degeneration, diabetic retinopathy, and glaucoma. However, molecular biomarkers and targeted therapies for immune cell activation in these disorders are currently lacking. To address this, we investigated the involvement and role of translocator protein (TSPO), a biomarker of microglial and astrocyte gliosis in brain degeneration, in the context of retinal inflammation. Here, we find that TSPO is acutely and specifically upregulated in retinal microglia in separate mouse models of retinal inflammation and injury. Concomitantly, its endogenous ligand, diazepam-binding inhibitor (DBI), is upregulated in the macroglia of the mouse retina such as astrocytes and Müller cells. In addition, we discover that TSPO-mediated signaling in microglia via DBI-derived ligands negatively regulates features of microglial activation, including reactive oxygen species production, TNF-α expression and secretion, and microglial proliferation. The inducibility and effects of DBI-TSPO signaling in the retina reveal a mechanism of coordinated macroglia-microglia interactions, the function of which is to limit the magnitude of inflammatory responses after their initiation, facilitating a return to baseline quiescence. Our results indicate that TSPO is a promising molecular marker for imaging inflammatory cell activation in the retina and highlight DBI-TSPO signaling as a potential target for immodulatory therapies.