ABSTRACT: Agouti protein and Agouti-related protein (Agrp) are paracrine signaling molecules that act by antagonizing the effects of melanocortins, and several alternatives have been proposed to explain their mechanisms of action. Genetic crosses in a sensitized background uncover a phenotypic difference between overexpression of Agouti and loss of Mc1r function, demonstrate that a functional Mc1r is required for the pigmentary effects of Agouti, and suggest that Agouti protein can act as an agonist of the Mc1r in a way that differs from α-MSH stimulation. In vitro, Agouti protein inhibits melanocortin action by two mechanisms: competitive antagonism that depends on the carboxy-terminus of the protein, and downregulation of melanocortin receptor signaling that depends on the aminoterminus. Our findings provide evidence of a novel signaling mechanism whereby α-MSH and Agouti protein function as independent ligands that inhibit each other's binding and transduce opposite signals through a single receptor.