Using spectroscopic ellipsometry, we study the optical conductivity ͑͒ of insulating LaSrMnO 4 in the energy range of 0.75-5.8 eV from 15 to 330 K. The layered structure gives rise to a pronounced anisotropy. A multipeak structure is observed in 1 a ͑͒ ͑ϳ2, 3.5, 4.5, 4.9, and 5.5 eV͒, while only one peak is present at 5.6 eV in 1 c ͑͒. We employ a local multiplet calculation and obtain ͑i͒ an excellent description of the optical data, ͑ii͒ a detailed peak assignment in terms of the multiplet splitting of Mott-Hubbard and charge-transfer absorption bands, and ͑iii͒ effective parameters of the electronic structure, e.g., the on-site Coulomb repulsion U eff = 2.2 eV, the in-plane charge-transfer energy ⌬ a = 4.5 eV, and the crystal-field parameters for the d 4 configuration ͑10Dq = 1.2 eV, ⌬ eg = 1.4 eV, and ⌬ t2g = 0.2 eV͒. The spectral weight of the lowest absorption feature ͑at 1 -2 eV͒ changes by a factor of 2 as a function of temperature, which can be attributed to the change of the nearest-neighbor spin-spin correlation function across the Néel temperature T N = 133 K. Interpreting LaSrMnO 4 effectively as a Mott-Hubbard insulator naturally explains this strong temperature dependence, the relative weight of the different absorption peaks, and the pronounced anisotropy. By means of transmittance measurements, we determine the onset of the optical gap ⌬ opt a = 0.4-0.45 eV at 15 K and 0.1-0.2 eV at 300 K.Our data show that the crystal-field splitting is too large to explain the anomalous temperature dependence of the c-axis lattice parameter by thermal occupation of excited crystal-field levels. Alternatively, we propose that a thermal population of the upper Hubbard band gives rise to the shrinkage of the c-axis lattice parameter.