A display may have an array of pixels that display images for a user. The backlight unit may have a light-guide layer. An array of light-emitting diodes may emit light into an edge of the light-guide layer. The light guide layer may overlap a backlight reflector. A quarter wave plate may be interposed between the light guide layer and the backlight reflector. A turning film may be interposed between a lower polarizer in the array of pixels and the light guide layer. The lower polarizer may be a reflective polarizer. Light exiting the upper surface of the turning film may have a dominant polarization. A half wave plate may be used to rotate the dominant polarization into alignment with a pass axis of the reflective polarizer.