The agouti gene regulates the differential production of eumelanin (black or brown) and phaeomelanin (yellow) pigment granules by melanocytes in the hair follicles of mice. The original nonagouti (a) allele, which confers a predominantly black coat color, has been shown to revert to two other more dominant agouti alleles, black-and-tan (a(t)) and white-bellied agouti (A(W)), with an exceptionally high frequency. The a(t) and A(W) alleles confer phenotypes in which the pigmentation is not uniformly distributed over the dorsal and ventral surfaces of the animal; in both cases the ventral surface of the animal is markedly lighter than the dorsal surface due to an increase in phaeomelanin production. To understand the unusually high reversion rate of a to a(t) or A(W), and to decipher the molecular events associated with the different pigmentation patterns associated with these three agouti alleles, we have characterized a, a(t) and A(W) at the molecular level. Here, we report that insertions of 11, 6, and 0.6 kb are present at precisely the same position in the first intron of the agouti gene in a, a(t), and A(W), respectively. The a insertion consists of a 5.5-kb VL30 element that has incorporated 5.5 kb of additional sequence internally; this internal sequence is flanked by 526 bp direct repeats. The a(t) allele contains only the VL30 element and a single, internal 526-bp repeat. The A(W) allele has only a solo VL30 LTR. Based on the comparison of the structure of the a(t) and A(W) insertions, we propose that reverse mutations occur by excision of inserted sequences in a through homologous recombination, utilizing either the 526-bp direct repeats to generate a(t) or the VL30 LTRs to generate A(W). Moreover, the analysis of these three alleles has allowed us to identify additional exons of the agouti gene that give rise to alternatively processed farms of agouti mRNA. We demonstrate that the distinct insertions in a, a(t) and A(w) cause pigmentation differences by selectively inactivating the expression of different forms of agouti transcripts.