The ability of directionally selective (DS) retinal ganglion cells to respond selectively to stimulus motion in one direction is a classic unresolved example of computation in a local neural circuit. Recent evidence indicates that DS responses occur first in the retina in the dendrites of starburst amacrine cells (interneurons presynaptic to the ganglion cells). We report that the directional responses of starburst-cell dendrites and DS ganglion cells are highly sensitive to the polarity of the transmembrane chloride gradient. Reducing the transmembrane chloride gradient by ion substitution or by blocking the K-Cl cotransporter resulted in the starburst cells responding equally to light moving in opposite directions. Conversely, increasing the chloride gradient by blocking the Na-K-Cl cotransporter eliminated responses to light moving in either direction. Moreover, in each case, blocking the chloride cotransporters or reducing the transmembrane chloride gradient eliminated the directional responses of DS ganglion cells in a manner opposite that of the starburst cells. These results indicate that chloride cotransporters play a key role in the generation of direction selectivity and that the directional responses of starburst cells and DS ganglion cells are exquisitely sensitive to the chloride equilibrium potential. The findings further suggest that the directional responses of DS ganglion cells are mediated in part by the directional release of gamma-aminobutyric acid from starburst dendrites and that the asymmetric distribution of the two cotransporters along starburst-cell dendrites mediates direction selectivity. A model of direction selectivity in the retina that incorporates these and other findings is discussed.