In mammalian skin, melanin is produced by melanocytes and transferred to epithelial cells, with the epithelial cells thought to receive pigment only and not generate it. Melanin formation requires the enzyme tyrosinase, which catalyzes multiple reactions in the melanin biosynthetic pathway. Here, we reassess cutaneous melanogenesis using tyramide-based tyrosinase assay (TTA), a simple test for tyrosinase activity in situ. In the TTA procedure, tyrosinase reacts with biotinyl tyramide, causing the substrate to deposit near the enzyme. These biotinylated deposits are then visualized with streptavidin conjugated to a fluorescent dye. In the skin and eye, TTA was highly specific for tyrosinase and served as a sensitive indicator of pigment cell distribution and status. In clinical skin samples, the assay detected pigment cell defects, such as melanocytic nevi and vitiligo, providing confirmation of medical diagnoses. In murine skin, TTA identified a new tyrosinase-positive cell type--the medullary cells of the hair--providing the first example of cutaneous epithelial cells with a melanogenic activity. Presumably, the epithelial tyrosinase originates in melanocytes and is acquired by medullary cells during pigment transfer. As tyrosinase by itself can generate pigment from tyrosine, it is likely that medullary cells produce melanin de novo. Thus, we propose that melanocytes convert medullary cells into pigment cells by transfer of the melanogenic apparatus, an unusual mechanism of differentiation that expands the skin's pigmentary system.