Regenerative therapies are limited by unfavorable environments in aging and diseased tissues. A promising strategy to improve success is to balance inflammatory and anti-inflammatory signals and enhance endogenous tissue repair mechanisms. Here, we identified a conserved immune modulatory mechanism that governs the interaction between damaged retinal cells and immune cells to promote tissue repair. In damaged retina of flies and mice, platelet-derived growth factor (PDGF)-like signaling induced mesencephalic astrocyte-derived neurotrophic factor (MANF) in innate immune cells. MANF promoted alternative activation of innate immune cells, enhanced neuroprotection and tissue repair, and improved the success of photoreceptor replacement therapies. Thus, immune modulation is required during tissue repair and regeneration. This approach may improve the efficacy of stem-cell-based regenerative therapies.