Steel factor (SLF) and its cognate receptor, c-kit, have been implicated in the generation of melanocytes from migrating neural crest (NC) cells during early vertebrate embryogenesis. However, the source of SLF in the early avian embryo and its precise role in melanogenesis are unclear. We report here that NC cells themselves express and release SLF protein, which in turn acts as an autocrine factor to induce melanogenesis in nearby NC cells. These results indicate that NC cell subpopulations play an active role in the determination of their cell fate and suggest a different developmental role for the embryonic microenvironment than what has been previously proposed.