Let K[x, y] be the polynomial algebra in two variables over a field K of ch
aracteristic 0. A subalgebra R of K[x, y] is called a retract if there is a
n idempotent homomorphism (a retraction, or projection) phi : K[x, y] --> K
[x, y] such that phi(K[x, y]) = R. The presence of other, equivalent, defin
itions of retracts provides several different methods of studying and apply
ing them, and brings together ideas from combinatorial algebra, homological
algebra, and algebraic geometry. In this paper, we characterize all the re
tracts of K[x, y] up to an automorphism, and give several applications of t
his characterization, in particular, to the well-known Jacobian conjecture.