Melanocyte-stimulating hormone plays an important role in the regulation of melanocyte differentiation in the mouse epidermis by inducing tyrosinase activity, melanosome formation, translocation of melanosomes, and increased dendritogenesis. The proliferative activity of differentiating epidermal melanocytes of newborn mice during the healing of skin wounds is regulated by semi-dominant genes, suggesting that the genes are involved in regulating the proliferative activity of epidermal melanocytes during differentiation. From the results of serum-free culture of epidermal cell suspensions from neonatal mouse skin, basic fibroblast growth factor is shown to stimulate the sustained proliferation of melanoblasts in the presence of dibutyryl adenosine 3',5'-cyclic monophosphate and keratinocyte-derived factors. Moreover, each step of melanocyte differentiation is controlled by numerous coat color genes. These genes control melanocyte differentiation by regulating the differentiation of neural crest cells into melanoblasts in embryonic skin, or by regulating the differentiation of neural crest cells into melanoblasts in embryonic skin, or by regulating transcription and/or translation of the tyrosinase gene in the differentiating melanocytes. These results suggest that melanocyte proliferation and differentiation in the mouse epidermis are controlled by both genetic factors and local tissue environment.