Intracellular recordings were obtained from 57 cone-driven bipolar cells in the light-adapted retina of the land-phase (adult) tiger salamander (Ambystoma tigrinum). Responses to flashes of negative and positive contrast for centered spots of optimum spatial dimensions were analyzed as a function of contrast magnitude. On average, the contrast/response curves of depolarizing and hyperpolarizing bipolar cells in the land-phase animals were remarkably similar to those of aquatic-phase animals. Thus, the primary retinal mechanisms mediating contrast coding in the outer retina are conserved as the salamander evolves from the aquatic to the land phase. To evaluate contrast encoding in the context of natural environments, the distribution of contrasts in natural images was measured for 65 scenes. The results, in general agreement with other reports, show that the vast majority of contrasts in nature are very small. The efficient coding hypothesis of Laughlin was examined by comparing the average contrast/response curves of bipolar cells with the cumulative probability distribution of contrasts in natural images. Efficient coding was found at 20 cd/m2 but at lower levels of light adaptation, the contrast/response curves were much too shallow. Further experiments show that two fundamental physiological factors-light adaptation and the nonlinear transfer across the cone-bipolar synapse are essential for the emergence of efficient contrast coding. For both land- and aquatic-based animals, the extent and symmetry of the dynamic range of the contrast/response curves of both classes of bipolar cells varied greatly from cell to cell. This apparent substrate for distributed encoding is established at the bipolar cell level, since it is not found in cones. As a result, the dynamic range of the bipolar cell population brackets the distribution of contrasts found in natural images.