Mice that carry the lethal yellow (Ay) or viable yellow (Avy) mutation, two dominant mutations of the agouti (a) gene in mouse chromosome 2, exhibit a phenotype that includes yellow fur, marked obesity, a form of type II diabetes associated with insulin resistance, and an increased susceptibility to tumor development. Molecular analyses of these and several other dominant "obese yellow" a-locus mutations suggested that ectopic expression of the normal agouti protein gives rise to this complex pleiotropic phenotype. We have now tested this hypothesis directly by generating transgenic mice that ectopically express an agouti cDNA clone encoding the normal agouti protein in all tissues examined. Transgenic mice of both sexes have yellow fur, become obese, and develop hyperinsulinemia. In addition, male transgenic mice develop hyperglycemia by 12-20 weeks of age. These results demonstrate conclusively that the ectopic agouti expression is responsible for most, if not all, of the phenotypic traits of the dominant, obese yellow mutants.