Hydroxyl-functionalized graphene (G–OH) was efficiently produced from exfoliation of graphite powder by ball milling the presence of potassium hydroxide (KOH). While the nanoscale graphene sheets were confirmed by various characterization techniques, including atomic force microscopy (AFM), scanning electron microscopy (SEM), transmission electron microscopy (TEM), and UV-vis spectroscopy, the formation of hydroxyl groups in G–OH was revealed by Fourier transform infrared (FTIR), Nuclear Magnetic Resonance analysis (NMR), Raman and X-ray photoelectron spectroscopic (XPS) measurements. The as-prepared G–OH showed strong hydrophilicity with good solubility in water, excellent electrochemical activity and no influence on the growth of human retinal pigment epithelium (RPE) cells. More than 80% cell survival rate and less than 7% lactate dehydrogenase (LDH) release were observed for RPE cells treated with G–OH, indicating excellent biocompatibility.