An ectopic neural retina is formed at the outer layer of the retina in the silver homozygote (B/B) of the Japanese quail. In situ hybridization and immunohistochemical analysis revealed that cells in the outer layer of retina first expressed a pigment-cell-specific gene, mmp115, and then began to express a neural marker in B/B embryos, indicating that the ectopic neural retina is formed via transdifferentiation of differentiated pigmented epithelial cells (PECs). An in vitro study revealed that cultured retinal PECs (rPECs) from B/B embryos exhibit less pigment granule and a higher growth rate than cells from heterozygotes (B/+). B/+ PECs stopped proliferating when confluency was reached, while B/B PECs continued to proliferate. Some B/B cells overlaid other B/B cells and formed lentoid bodies. Immunological analysis revealed that B/B rPECs transdifferentiated to lens cells and neural cells in vitro with no addition of basic FGF (bFGF), while B/+ rPECs required bFGF to transdifferentiate. Expression of PEC-specific genes, mmp115, tyrosinase, and TRP-1, was downregulated, but that of Mitf and pax6 was upregulated in B/B PECs. Antibody against Mitf stained the nucleus of B/+ PECs but not that of B/B cells, suggesting that the normal Mitf is not present in the silver homozygote due to mutation. Sequence analysis revealed that Mitf from the silver homozygote has an amino acid substitution in the basic region and is truncated in the C-terminal region. Transient transfection analysis revealed that Mitf from the silver homozygote exhibits a lower level of activity than wild-type Mitf with respect to transactivation of the mmp115 promoter. Furthermore, overexpression of chicken Mitf induced normal pigmentation in B/B rPECs. These results strongly suggest that the silver phenotype is caused by the mutation of Mitf and that Mitf plays a critical role in rPEC differentiation and transdifferentiation.