Purpose: (1) The purpose of this study was to describe significance and prevalence of the newly reported pearl necklace spectral domain optical coherence tomography (SDOCT) sign, in diabetic macular edema (DMO), (2) to track the course of this sign over a period of at least 10 months. Materials and Methods: The pearl necklace SDOCT sign refers to hyperreflective dots in a contiguous ring around the inner wall of cystoid spaces in the retina, recently described for the first time in 21 eyes with chronic exudative maculopathy. A retrospective analysis was performed of SDOCT images of all patients presenting to the DMO referral clinic of a tertiary eye care center, over a period of 24 months. Images of patients displaying this sign were sequentially analyzed for at least 10 months to track... the course of the sign. Results: Thirty-five eyes of 267 patients (13.1%) were found to display the pearl necklace sign. Twenty-eight eyes responded to intravitreal ranibizumab treatment with resolution of edema. In 21 eyes, the dots coalesced to form a clump, visible in the infrared fundus photograph as hard exudates; in seven eyes, dots disappeared without leaving visible exudates. In three eyes, the sign was seen in subfoveal cystoid spaces, with subsequent development of hard exudates, and drop in visual acuity of 20 letters or more. Conclusion: Pearl necklace SDOCT sign is not infrequent in DMO. This sign is a precursor to hard exudates in the majority of cases. If this sign is seen subfoveally, drop in visual acuity can be expected, despite treatment.