Transcription factor genes governing pigment cell development that are associated with spotting mutations in mice include members of several structural transcription factor classes but not members of the basic helix-loop-helix (bHLH) class, important for neurogenesis and myogenesis. To determine the effects of bHLH factor expression on pigment cell development, the neurogenic bHLH factor Mash1 was expressed early in pigment cell development in transgenic mice from the dopachrome tautomerase (Dct) promoter. Dct:Mash1 transgenic founders exhibit variable microphthalmia and patchy coat color hypopigmentation. Transgenic F1 mice exhibit microphthalmia with complete coat color dilution. Marker analysis demonstrates that Mash1 expression in the retinal pigmented epithelium (RPE) initiates neurogenesis in this cell layer, whereas expression in remaining neural crest-derived melanocytes alters their differentiation, in part by profoundly downregulating expression of the p (pink-eyed dilution) gene, while maintaining their cell fate. The effects of transcriptional perturbation of pigment cell precursors by Mash1 further highlight differences between pigment cells of distinct developmental origins, and suggest a mechanism for the alteration of melanogenesis to result in marked coat color dilution.