During embryogenesis, the transcription factor, Sox10, drives the survival and differentiation of the melanocyte lineage. However, the role that Sox10 plays in postnatal melanocytes is not established. We show in vivo that melanocyte stem cells (McSCs) and more differentiated melanocytes express SOX10 but that McSCs remain undifferentiated. Sox10 knockout (Sox10fl; Tg(Tyr::CreER)) results in loss of both McSCs and differentiated melanocytes, while overexpression of Sox10 (Tg(DctSox10)) causes premature differentiation and loss of McSCs, leading to hair graying. This suggests that levels of SOX10 are key to normal McSC function and Sox10 must be downregulated for McSC establishment and maintenance. We examined whether the mechanism of Tg(DctSox10) hair graying is through increased expression of Mitf, a target of SOX10, by asking if haploinsufficiency for Mitf (Mitfvga9) can rescue hair graying in Tg(DctSox10) animals. Surprisingly, Mitfvga9 does not mitigate but exacerbates Tg(DctSox10) hair graying suggesting that MITF participates in the negative regulation of Sox10 in McSCs. These observations demonstrate that while SOX10 is necessary to maintain the postnatal melanocyte lineage it is simultaneously prevented from driving differentiation in the McSCs. This data illustrates how tissue-specific stem cells can arise from lineage-specified precursors through the regulation of the very transcription factors important in defining that lineage.