Chameleons are truly amazing color-change artists. In fact, chameleons are famous, but not unique, in the animal world for several things: 1) their ability to change colors, 2) their ability to move their two eyes independently to look in two different directions at once and see 360 degrees around them, 3) their ability to extend their sticky tongue up to twice the length of their body to catch insects, and 4) their feet with toes that are arranged into pincers for climbing trees. Chameleons are a type of lizard found in Africa, Southern Europe, and Asia. Nearly half of all chameleon species occur only in Madagascar, which is a large island off the east coast of Africa.
Chameleons actually have transparent, or clear, skin like glass. However, underneath this skin, which acts as a window, they have several layers of tissue that produce the colors you see. The first two layers under the skin contain cells with red and yellow color pigments. The next tissue layers contain cells that reflect light of the colors blue and white. Beneath these reflective cells is a tissue layer that contains melanin, the chemical that makes human skin different shades of brown and protects us from the sun'sharmful radiation. The chameleon can expand or contract the cells in each tissue layer, causing them to be exposed or hidden and allowing the chameleon to change its colors. For instance, by partially expanding the yellow cells in the pigmented layer, fully contracting the red cells, and then expanding the blue reflecting cells, the chameleon turns a mixture of yellow and blue, which to us looks green.
Chameleons can sport a wide diversity of colors, including brown, green, blue, yellow, red, black or white, but their abilities are not limitless; their color changes occur quite slowly and are limited to only the above colors. Chameleons change colors mostly in order to communicate with others, using colors to show emotions, fear, anger, attraction, etc. They do not really use their color changes to camouflage themselves against their surrounding. Instead, their skin changes colors in response to temperature, light, and mood.
You might be surprised to learn that there are other animals that are even more impressive than chameleons in their color-changing abilities. Octopuses, squid, and cuttlefish are a group of marine animals called "cephalopods" that are related to clams and snails and can actually change colors faster than chameleons (almost instantaneously) and many species have a larger repertoire of colors they can display than chameleons. Some species, like the cuttlefish, can even generate waves of colors that flow and ripple across their body, or produce one color pattern on one half of their body to attract a mate, while producing a completely different pattern on the other half to warn away competitors. Cephalopods have tiny color cells all over their skin called "chromatophores", which are like sacs of pigment. Each sac is surrounded by muscles that can contract or expand the sac, causing the color to hide or to show. They can change their colors and patterns in an almost infinite number of ways by contracting and expanding color sacs with different colors on different parts of their body. Cephalopods also have reflective cells called "irridophores" that act as prisms and reflect light in the same way that a hummingbird's throat feathers do. Irridiphores usually reflect blue light and are also surrounded by muscles that can contract or expand these cells, to add more complexity to cephalopod's color combinations.