The level of retinal oxygenation is potentially an important cue to the onset or presence of some common retinal diseases. An improved method for assessing oxygen tension in retinal blood vessels from phosphorescence lifetime imaging data is reported in this paper. The optimum estimate for phosphorescence lifetime and oxygen tension is obtained by regularizing the least-squares (LS) method. The estimation method is implemented with an iterative algorithm to minimize a regularized LS cost function. The effectiveness of the proposed method is demonstrated by applying it to simulated data as well as image data acquired from rat retinas. The method is shown to yield estimates that are robust to noise and whose variance is lower than that obtained with the classical LS method.