The role of inadequate retinal oxygenation in the development of retinal diseases is an important problem for investigation. In our study, quantitative measurement of oxygen tension in retinal vasculatures is made with the noninvasive technique of phosphorescence lifetime imaging. A frequency domain approach is used to estimate the fluorescence or phosphorescence lifetime by regression analysis. Measurements are influenced by the presence of noise due to which least squares estimation yields results with high variance. Since accurate estimates are important in the study, we propose a spatial regularization method by adding a quadratic penalty term in the cost function instead of directly using classical least squares. The effectiveness of the proposed method is demonstrated by applying it to experimental and simulated data to show improved performance when compared with unregularized estimation.