Optic disc and retinal vasculature are important anatomical structures in the retina of the eye and any changes observed in these structures provide vital information on severity of various diseases. Digital retinal images are shown to provide a meaningful way of documenting and assessing some of the key elements inside the eye including the optic nerve and the tiny retinal blood vessels. In this work, an attempt has been made to detect and differentiate abnormalities of the retina using Digital image processing together with Optimization based segmentation and Artificial Neural Network methods. The retinal fundus images were recorded using standard protocols. Ant Colony Optimization is employed to extract the most significant objects namely the optic disc and blood vessel. The features related to these objects are obtained and corresponding indices are also derived. Further, these features are subjected to classification using Radial Basis Function Neural Networks and compared with conventional training algorithms. Results show that the Ant Colony Optimization is efficient in extracting useful information from retinal images. The features derived are effective for classification of normal and abnormal images using Radial basis function networks compared to other methods. As Optic disc and blood vessels are significant markers of abnormality in retinal images, the method proposed appears to be useful for mass screening. In this paper, the objectives of the study, methodology and significant observations are presented. Copyright 2010 ISA. All Rights Reserved.