A retrospective review of 25 consecutive patients having penetrating keratoplasty (PKP) with the preoperative diagnoses of pseudophakic bullous keratopathy (PBK) and cystoid macular edema (CME) was undertaken to analyze the natural history of preoperative CME following keratoplasty. Follow-up ranged from 13 to 54 months with a mean of 27 months. All patients had intraocular lens exchanges with 24 receiving posterior chamber lenses; 23 had lenses sutured to the posterior iris. Sixteen patients (64%) recovered a visual acuity of 20/40 or better. The average time for visual recovery to 20/40 was nine months with a range of two to 45 months. Eighteen (72%) had resolution of angiographic CME. Three patients previously diagnosed as having chronic CME recovered visual acuity of 20/40 or better. Cases of PBK with CME may have an excellent visual prognosis if the IOL is managed properly at the time of PKP.