Diabetic retinopathy, a microvascular complication of diabetes, remains the leading cause of vision loss in working age adults. Hyperglycemia is considered as the main instigator for its development, around which other molecular pathways orchestrate. Of these multiple pathways, oxidative stress induces many metabolic, functional and structural changes in the retinal cells, leading to the development of pathological features characteristic of this blinding disease. An increase in cytosolic reactive oxygen species (ROS), produced by cytosolic NADPH oxidase 2 (Nox2), is an early event in the pathogenesis of diabetic retinopathy, which leads to mitochondrial damage and retinal capillary cell apoptosis. Activation of Nox2 is mediated through an obligatory small molecular weight GTPase, Ras-related C3 botulinum toxin substrate 1 (Rac1), and subcellular localization of Rac1 and its activation are regulated by several regulators, rendering it a complex biological process. In diabetes, Rac1 is functionally activated in the retina and its vasculature, and, via Nox2-ROS, contributes to mitochondrial damage and the development of retinopathy. In addition, Rac1 is also transcriptionally activated, and epigenetic modifications play a major role in this transcriptional activation. This review focusses on the role of Rac1 and its regulation in the development and progression of diabetic retinopathy, and discusses some possible avenues for therapeutic interventions.