This question comes up occasionally and I was just recently asked a similar question by email, so I thought it would be a good idea to do a blog post that everyone can see. Although there’s a great article on this here: http://mentalfloss.com/uk/biology/30542/your-eyes-see-everything-upside-down
First off, the image of the world projected onto our retina is upside. This is just a consequence of geometry. This image from the Wikipedia article on pinhole cameras shows this nicely:
Our eye is more sophisticated than a pinhole camera — it has a lens so it can collect light over the whole of our pupil and bring it to a focus on our retina — but that isn’t important here. The retinal image is still upside-down. So why don’t we see the world upside-down?
One way of answering that is to point out that our eyes don’t, actually, “see” anything at all. Seeing happens in the brain. All your brain needs to know is the relationship between which photoreceptors are receiving the light, and where the object is in the world. We’ve learnt that if we want to touch an object whose image appears at the bottom of our eye, we usually have to raise our hands up (in the direction of our shoulders) while extending them, not move them down (towards our feet). So long as we know the correct mapping, it doesn’t actually matter where on the eye the information is.