Color patterns of bird plumage affect animal behavior and speciation. Diverse patterns are present in different species and within the individual. Here, we study the cellular and molecular basis of feather pigment pattern formation. Melanocyte progenitors, distributed as a horizontal ring in the proximal follicle, mature to melanocytes which are transferred to the epithelium as feathers grow. Different pigment patterns form by modulating the presence, arrangement, or differentiation of melanocytes. Agouti, present in the outer dermis layer, blocks melanocyte differentiation producing unpigmented feather regions. Thus the outer dermis plays an important role in pigment patterning. Since feathers are replaced by cycling, the pigmentation patterns can be replaced at each feather generation to suit physiological needs. Thus, the evolution of stem cell niche arrangement allows complex pigment patterns to form by combining simple regulatory mechanisms.