The remarkable sensitivity of the Limulus eye to moving patterns can be explained by the dynamics of the neural mechanisms that transduce light to the firing of nerve impulses. The excitatory generator potential results from the superposition of small discrete potentials triggered by photon absorptions. This mechanism specifies both the frequency response to time‐varying stimuli and the spectral properties of the intrinsic noise. The response to higher frequencies is enhanced by two inhibitory synaptic mechanisms; self‐inhibition that is local to photoreceptors, and lateral inhibition that depends on the activity in neighboring photoreceptors. Analysis of these mechanisms yields a mathematical model that accounts for both the deterministic and the stochastic components in the spike train.