Dun is a wild-type coat color in horses characterized by pigment dilution with a striking pattern of dark areas termed primitive markings. Here we show that pigment dilution in Dun horses is due to radially asymmetric deposition of pigment in the growing hair caused by localized expression of the T-box 3 (TBX3) transcription factor in hair follicles, which in turn determines the distribution of hair follicle melanocytes. Most domestic horses are non-dun, a more intensely pigmented phenotype caused by regulatory mutations impairing TBX3 expression in the hair follicle, resulting in a more circumferential distribution of melanocytes and pigment granules in individual hairs. We identified two different alleles (non-dun1 and non-dun2) causing non-dun color. non-dun2 is a recently derived allele, whereas the Dun and non-dun1 alleles are found in ancient horse DNA, demonstrating that this polymorphism predates horse domestication. These findings uncover a new developmental role for T-box genes and new aspects of hair follicle biology and pigmentation.