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We tested the short- and long-term ability of polylactic-glycolic acid (PLGA) microspheres loaded with dexamethasone to reduce ocular inflammation in rabbits elicited by intravitreal lipopolysaccharide (LPS) injection. PLGA microspheres loaded with dexamethasone were prepared by the solvent evaporation technique from an oil/water emulsion and sterilized by gamma irradiation (25 kGy). The microsphere fraction selected was 2:10 (dexamethasone:PLGA) and contained 141 ± 0.38 μg dexamethasone/mg PLGA. Microsphere diameters were 20–53 μm, and the mean encapsulation efficiency was 92.97 ± 0.75%. Seven days prior to the induction of panuveitis, 10 mg of dexamethasone-free or dexamethasone-loaded microspheres were injected into the vitreous. Control animals received no injection. Panuveitis was induced in male New Zealand rabbits (2.5–3.0 kg) by intravitreal injection of Escherichia coli LPS. Clinical evaluation, electroretinography and histopathologic studies were performed in short-term studies of 15 days and in long-term studies of 33 days. Efficacy in reducing inflammation was also studied in vitrectomized eyes. In short-term studies eyes injected with dexamethasone-loaded microspheres had less inflammation than control eyes and eyes injected with blank microspheres. Inflammation reverted in all groups by 15 days after LPS injection. A second LPS dose given on Day 30 provoked a high peak of inflammation in control eyes and in those injected with blank microspheres. In contrast, only slight inflammation occurred in eyes injected with dexamethasone-loaded microspheres. Histopathology and electroretinography supported these results. Dexamethasone-loaded microspheres effectively reduced intraocular inflammation caused by LPS in both short- and long-term studies.