The Patch (Ph) mutation in the mouse, a deletion that includes the gene for PDGFR alpha, is a recessive lethal that exhibits a dominant pigment phenotype in heterozygotes. To assess whether the Ph mutation acts cell-autonomously or non-autonomously on melanocyte development, we have examined the melanogenic potential of neural crest populations from normal and mutant crest cells in vitro and the pattern of dispersal and survival of melanocyte precursors (MPs) in vivo. We report that trunk neural crest cells from homozygous Ph embryos give rise to pigmented melanocytes in vitro in response to Steel factor (SlF). In vivo, homozygous Ph embryos contain a subpopulation of crest-derived cells that express c-kit and tyrosinase-related protein-2 characteristic of MPs. These cells begin to migrate normally on the lateral crest migration pathway, but then fail to disperse in the dermal mesenchyme and subsequently disappear. Although dermal mesenchyme is adversely affected in Ph homozygotes, SlF mRNA expression by the cells of the dermatome is normal in Ph embryos when neural crest-derived MPs start to migrate on the lateral pathway. In contrast, mRNA for the SlF receptor, c-kit, was observed to be ectopically expressed in somites and lateral mesenchyme in embryos carrying the Ph mutation. Based on this ectopic expression of c-kit in Ph mutant embryos, and the observed distribution of SlF protein in normal and mutant embryos, we suggest that competition for limited amounts of SlF localized on the lateral neural crest migration pathway alters melanocyte dispersal and survival.