A fundamental problem in developmental biology concerns how multipotent precursors choose specific fates. Neural crest cells (NCCs) are multipotent, yet the mechanisms driving specific fate choices remain incompletely understood. Sox10 is required for specification of neural cells and melanocytes from NCCs. Like sox10 mutants, zebrafish shady mutants lack iridophores; we have proposed that sox10 and shady are required for iridophore specification from NCCs. We show using diverse approaches that shady encodes zebrafish leukocyte tyrosine kinase (Ltk). Cell transplantation studies show that Ltk acts cell-autonomously within the iridophore lineage. Consistent with this, ltk is expressed in a subset of NCCs, before becoming restricted to the iridophore lineage. Marker analysis reveals a primary defect in iridophore specification in ltk mutants. We saw no evidence for a fate-shift of neural crest cells into other pigment cell fates and some NCCs were subsequently lost by apoptosis. These features are also characteristic of the neural crest cell phenotype in sox10 mutants, leading us to examine iridophores in sox10 mutants. As expected, sox10 mutants largely lacked iridophore markers at late stages. In addition, sox10 mutants unexpectedly showed more ltk-expressing cells than wild-type siblings. These cells remained in a premigratory position and expressed sox10 but not the earliest neural crest markers and may represent multipotent, but partially-restricted, progenitors. In summary, we have discovered a novel signalling pathway in NCC development and demonstrate fate specification of iridophores as the first identified role for Ltk.