An electronic device may be provided with a display mounted in a housing. The display may include a liquid crystal display module and a reflective polarizer having an in-plane optical axis. The display may also include a backlight unit that includes a light source, a light guide element, and a reflector film coupled to a backside of the light guide element. The display may also include a light retardation layer such as a quarter wave film. The quarter wave film may be arranged between the reflective polarizer and the reflector film of the backlight unit. During operation of the display, partially polarized light that is output from a front side of the light guide element may have a first component parallel to the in-plane optical axis and a second component perpendicular to the in-plane optical axis of the reflective polarizer. The second component may be reflected from the reflective polarizer.