The Greying with age phenotype in horses involves loss of hair pigmentation whereas skin pigmentation is not reduced, and a predisposition to melanoma. The causal mutation was initially reported as a duplication of a 4.6 kb intronic sequence in Syntaxin 17. The speed of greying varies considerably among Grey horses. Here we demonstrate the presence of two different Grey alleles, G2 carrying two tandem copies of the duplicated sequence and G3 carrying three. The latter is by far the most common allele, probably due to strong selection for the striking white phenotype. Our results reveal a remarkable dosage effect where the G3 allele is associated with fast greying and high incidence of melanoma whereas G2 is associated with slow greying and low incidence of melanoma. The copy number expansion transforms a weak enhancer to a strong melanocyte-specific enhancer that underlies hair greying (G2 and G3) and a drastically elevated risk of melanoma (G3 only). Our direct pedigree-based observation of the origin of a G2 allele from a G3 allele by copy number contraction demonstrates the dynamic evolution of this locus and provides the ultimate evidence for causality of the copy number variation of the 4.6 kb intronic sequence.