Neovascularization, defined as abnormal formation of blood vessels in the retina, is a sight-threatening condition indicative of late-stage diabetic retinopathy (DR). Ischemia due to leakage of blood vessels causes the body to produce new and weak vessels that can lead to complications such as vitreous hemorrhages. Neovascularization on the disc (NVD) is diagnosed when new vessels are located within one disc-diameter of the optic disc. Accurately detecting NVD is important in preventing vision loss due to DR. This paper presents a method for detecting NVD in digital fundus images. First, a region of interest (ROI) containing the optic disc is manually selected from the image. By adaptively combining contrast enhancement methods with a vessel segmentation technique, the ROI is reduced to the regions indicated by the segmented vessels. Textural features extracted by using amplitude-modulation frequency-modulation (AM-FM) techniques and granulometry are used to differentiate NVD from a normal optic disc. Partial least squares is used to perform the final classification. Leave-one-out cross-validation was used to evaluate the performance of the system with 27 NVD and 30 normal cases. We obtained an area under the receiver operator characteristic curve (AUC) of 0.85 by using all features, increasing to 0.94 with feature selection. Diabetic Retinopathy; Amplitude-modulation Frequency modulation; Granulometry, Partial Least Squares © 2012 IEEE.