The genetic loci agouti and extension control the relative amounts of eumelanin (brown-black) and phaeomelanin (yellow-red) pigments in mammals: extension encodes the receptor for melanocyte-stimulating hormone (MSH) and agouti encodes a novel 131-amino-acid protein containing a signal sequence. Agouti, which is produced in the hair follicle, acts on follicular melanocytes to inhibit alpha-MSH-induced eumelanin production, resulting in the subterminal band of phaeomelanin often visible in mammalian fur. Here we use partially purified agouti protein to demonstrate that agouti is a high-affinity antagonist of the MSH receptor and blocks alpha-MSH stimulation of adenylyl cyclase, the effector through which alpha-MSH induces eumelanin synthesis. Agouti was also found to be an antagonist of the melanocortin-4 receptor, a related MSH-binding receptor. Consequently, the obesity caused by ectopic expression of agouti in the lethal yellow (Ay) mouse may be due to the inhibition of melanocortin receptor(s) outside the hair follicle.