Disruption of certain genes can reveal cryptic genetic variants that do not typically show phenotypic effects. Because this phenomenon, which is referred to as 'phenotypic capacitance', is a potential source of trait variation and disease risk, it is important to understand how it arises at the genetic and molecular levels. Here, we use a cryptic colony morphology trait that segregates in a yeast cross to explore the mechanisms underlying phenotypic capacitance. We find that the colony trait is expressed when a mutation in IRA2, a negative regulator of the Ras pathway, co-occurs with specific combinations of cryptic variants in six genes. Four of these genes encode transcription factors that act downstream of the Ras pathway, indicating that the phenotype involves genetically complex changes in the transcriptional regulation of Ras targets. We provide evidence that the IRA2 mutation reveals the phenotypic effects of the cryptic variants by disrupting the transcriptional silencing of one or more genes that contribute to the trait. Supporting this role for the IRA2 mutation, deletion of SFL1, a repressor that acts downstream of the Ras pathway, also reveals the phenotype, largely due to the same cryptic variants that were detected in the IRA2 mutant cross. Our results illustrate how higher-order genetic interactions among mutations and cryptic variants can result in phenotypic capacitance in specific genetic backgrounds, and suggests these interactions might reflect genetically complex changes in gene expression that are usually suppressed by negative regulation.