Because of the limited processing capacity of eyes, retinal networks must adapt constantly to best present the ever changing visual world to the brain. However, we still know little about how adaptation in retinal networks shapes neural encoding of changing information. To study this question, we recorded voltage responses from photoreceptors (R1-R6) and their output neurons (LMCs) in the Drosophila eye to repeated patterns of contrast values, collected from natural scenes. By analyzing the continuous photoreceptor-to-LMC transformations of these graded-potential neurons, we show that the efficiency of coding is dynamically improved by adaptation. In particular, adaptation enhances both the frequency and amplitude distribution of LMC output by improving sensitivity to under-represented signals within seconds. Moreover, the signal-to-noise ratio of LMC output increases in the same time scale. We suggest that these coding properties can be used to study network adaptation using the genetic tools in Drosophila, as shown in a companion paper (Part II).