Cephalopods behaviorally respond to polarized light. Electrophysiology experiments with the squid, Loligo pealeii, demonstrated that spike responses from individual photoreceptors are a cosine2 function of the e-vector orientation of a polarized stimulus. The discrimination limit to this polarization sensitivity depended upon the difference between the orientation of a polarized stimulus with a preferred e-vector. The limit ranged from 2 degrees to 9.2 degrees with a direct stimulus in the dark or 4.8 degrees -22.1 degrees with non-directed background illumination and the cells were least discriminative at the preferred orientations. This limit can be explained partly by the variability in anatomical alignment of microvilli in the photoreceptors around a dominant axis. A few light-sensitive retinal fibers showed no polarization sensitivity. The coding of polarization information suggests that light intensity is transformed into an average spike rate. This average results from silent periods interspersed between bursts of spikes, each burst possessing a consistent interspike interval. The variations in the length and frequency of silent periods depend upon the difference between the polarization e-vector and a preferred e-vector orientation. The minimal discriminated orientation of a squid photoreceptor agrees well with the minimum behavioral discrimination of polarized light by another cephalopod, the octopus.