The classical mouse fancy Agouti gene is responsible for the wild-type coat color where hairs are banded black and yellow. The Agouti gene encodes a 131-amino-acid secreted protein product that regulates phaeomelanin synthesis by melanocytes in mice. Mice with a dominant mutation at this locus, Ay, develop a yellow coat color, obesity, and diabetes, as the result of a deletion that results in ectopic overexpression of the Agouti gene mRNA in all tissues examined. Obesity and diabetes in Ay mutant mice could be caused by circulation of the protein, or localized action in specific tissues as a paracrine factor acting in cell-cell communication. To test these two possibilities, the Agouti cDNA was overexpressed in the skin of transgenic mice using either the Tyrosinase-Related Protein-1 or the keratin-14 (K14) promoter, the latter with and without an intron. The K14 promoter directed high constitutive levels of expression of Agouti mRNA in the skin, and several lines of transgenic mice exhibited coat colors resembling dominant Agouti allele phenotypes. Two highly expressing K14-Agouti transgenic lines, with light-yellow pelage, were analyzed for obesity and hyperglycemia. The transgenic mice were not significantly different from the controls (P > 0.05), indicating that the Agouti product does not act as an endocrine factor. RNase protection assays revealed a correlation between the levels of dorsal and ventral skin expression with pigmentation/phaeomelanin phenotypes. Co-injection experiments with the Agouti transgenes and other transgenes demonstrated co-integration of the two constructs at the same chromosomal site in approximately 95% of F1 progeny, allowing transgene inheritance to be visibly detected.