We proposed a novel approach to automatic classification of Diabetic Retinopathy (DR) images and retrieval of clinically-relevant DR images from a database. Given a query image, our approach first classifies the image into one of the three categories: microaneurysm (MA), neovascularization (NV) and normal, and then it retrieves DR images that are clinically-relevant to the query image from an archival image database. In the classification stage, the query DR images are classified by the Multi-class Multiple-Instance Learning (McMIL) approach, where images are viewed as bags, each of which contains a number of instances corresponding to non-overlapping blocks, and each block is characterized by low-level features including color, texture, histogram of edge directions, and shape. McMIL first learns a collection of instance prototypes for each class that maximizes the Diverse Density function using Expectation-Maximization algorithm. A nonlinear mapping is then defined using the instance prototypes and maps every bag to a point in a new multi-class bag feature space. Finally a multi-class Support Vector Machine is trained in the multi-class bag feature space. In the retrieval stage, we retrieve images from the archival database who bear the same label with the query image, and who are the top K nearest neighbors of the query image in terms of similarity in the multi-class bag feature space. The classification approach achieves high classification accuracy, and the retrieval of clinically-relevant images not only facilitates utilization of the vast amount of hidden diagnostic knowledge in the database, but also improves the efficiency and accuracy of DR lesion diagnosis and assessment.