Melanocytes characterized by their tyrosinase activity, melanosomes and dendrites locate in the basal layer of epidermis and hair bulb in the skin of mice. Melanocytes differentiate from undifferentiated melanoblasts derived from embryonic neural crest. Melanocyte-stimulating hormone plays an important role in the regulation of the differentiation of mouse melanocytes in the epidermis and hair bulb by inducing tyrosinase activity, melanosome formation, transfer of melanosomes and increased dendritogenesis. The proliferative activity of differentiating epidermal melanocytes of newborn mice during the healing of skin wounds is regulated by semidominant genes, suggesting that the genes are involved in regulating the proliferative activity of epidermal melanocytes during differentiation. The morphology and differentiated functions of mouse melanocytes are shown to be influenced by environmental factors such as ultraviolet and ionizing radiations. From the results of serum-free culture of mouse epidermal melanoblasts, basic fibroblast growth factor is shown to stimulate the sustained proliferation of melanoblasts in the presence of dibutyryl adenosine 3',5'-cyclic monophosphate and keratinocytes. In contrast, melanocyte differentiation in serum-free culture is induced by melanocyte-stimulating hormone in the presence of keratinocytes. These results suggest that the structure and function of mouse melanocytes in the epidermis and hair bulb are controlled by both genetic factors and local tissue environment, such as hormones and growth factors.