The Greying with age phenotype in horses affects some breeds and involves loss of hair pigmentation and a predisposition to melanoma. The causal mutation was initially reported as a 4.6 kb intronic duplication in Syntaxin 17. We have now revealed the presence of two different Grey alleles, a relatively rare G2 carrying two tandem copies of the duplicated sequence and the more common G3 allele which carries three copies.  Our results reveal a dosage effect where the G3 allele is associated with fast hair greying and high incidence of melanoma whereas G2 is associated with slow hair greying and a 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 an elevated risk of melanoma (G3 only). Furthermore, we provide direct pedigree-based evidence of how a G2 allele can emerge from a G3 allele by copy number contraction, demonstrating the dynamic evolution of this locus.