Neural crest-derived pigment cells form species-specific patterns of pigmentation in amphibian embryos. We have characterized the appearance and changes in pigment cell distribution in the embryos of the California newt, Taricha torosa. Black melanophores first appear scattered over the surface of the somites intermingled with yellow xanthophores in stage 34/35 embryos. The melanophores then migrate either dorsally to form a dorsal stripe at the apex of the somites or ventrally along the intersomitic furrows to form a midbody stripe at the somite-lateral plate mesoderm border. Xanthophores remain between the two melanophore stripes and are also found in the dorsal fin and head. The formation of the dorsal stripe coincides with a change in melanophore tissue affinity from the surface of the somites to the subectodermal extracellular matrix (ECM). The latter substratum is the location of the cue used to organize the dorsal stripe. In addition, melanophores become elongate and highly arborized, which would allow them to extend to the region where the dorsal stripe forms. In contrast, xanthophores do not form long processes in vitro. This suggests that the ability of melanophores but not xanthophores to search for a cue at the apex of the somites may account in part for the segregation of these cells types. Melanophores and xanthophores are trapped to form the midbody stripe by the pronephric duct, which is located just beneath the ectoderm at the bases of the intersomitic furrows. Ablation of the duct prevents formation of the midbody stripe, although melanophores and xanthophores still fail to migrate ventrally over the lateral plate mesoderm. Melanophores grafted to the ventral midline fail to leave the confines of the donor tissue. This suggests that a factor in the lateral plate mesoderm in addition to the pronephric duct is inhibiting further ventral migration. There is no gross morphological difference in the organization of the subectodermal ECM dorsal and ventral to the pronephric duct as revealed by alcian blue, ruthenium red and staining with antibodies to fibronectin. We also conclude that the directed dispersal of the neural crest into the space between the somites and ectoderm is due to contact inhibition of cell movement, since T. torosa neural crest cells demonstrate contact inhibition in vitro and there are enough cells in the lateral migratory spaces to make contact events likely during dispersal.