Hair pigmentation is controlled by tightly coordinated programs of melanin synthesis and involves signaling through the melanocortin type 1 receptor (MC-1R) that regulates the switch between pheomelanogenesis and eumelanogenesis. However, the involvement of other signaling systems, including the bone morphogenetic protein (BMP) pathway, in the control of hair pigmentation remains to be elucidated. To assess the effects of BMP signaling on hair pigmentation, transgenic mice overexpressing the BMP antagonist noggin (promoter: keratin 5) were generated. Whereas wild-type C3H/HeJ mice have a subapical yellow band on otherwise black dorsal hairs, K5-Noggin mice are characterized by the absence of a yellow band and near-black pigment in dorsal coat. Noggin overexpression is accompanied by strongly reduced levels of Agouti signal protein and enhanced expression of microphthalmia transcription factor in the midphase of the hair-growth cycle. Wild-type color in K5-Noggin mice is restored by administration of a synthetic MC-1R antagonist resulting in the reappearance of a subapical yellow band. BMP-4 stimulates the expression of Agouti transcripts and protein in primary epidermal keratinocytes, and BMP signaling positively regulates dermal papilla-specific enhancer of the Agouti gene in primary dermal fibroblasts. Taken together, these data suggests that BMP signaling controls the expression of Agouti protein in the hair follicle and provide evidence for interaction between BMP and MC-1R signaling pathways to modulate the balance between pheomelanogenesis and eumelanogenesis during hair growth.