Most sheep breeds carry a coloured gene which shows up occassionally.  In New Zealand, high-quality coloured sheep are generally kept for their wool, which has both commercial and handcraft uses.

Coloured  genes are passed on from the parent animals and there are a variety of possible patterns: all white, several mixed patterns including piebald, and solid colour. The colour can be black, dark or light grey, or dark or light brown and coloured sheep tend to become lighter with  age.

Each breed has characteristics that make its wool suitable for particular uses. However, this does not discount good animal management from playing a big part, ensuring that wool is sound and free of contaminants such as vegetable matter. The way wool is handled at shearing time is important, and a Code of Practice has been prepared to ensure the highest possible quality.

The best-known end use for natural coloured wool is handcrafts. Spinners, weavers, felters and other woolcrafters value the wool from coloured sheep for its natural look and its freedom from dye chemicals. Some breeders export fleece and carded wool for handcrafts to other countries. Coloured wool is also processed by commercial manufacturers into yarn, and may be made into woven or knitted garments, blankets and rugs, and other items. These command high prices in the export and tourist markets. Natural coloured knitting yarn is popular in New Zealand and overseas, and is made by a number of companies. Natural coloured wool can also be blended with other specialty fibres, such as alpaca or mohair and most recently possum, in the making of luxury products. Furthermore, both commercial enterprises and handcrafters find that by overdyeing natural coloured wool they can obtain a lovely range of interesting soft colours.

The colour of New Zealand sheep is controlled by  two main gene series: one governs colour pattern and the other governs the actual colour that the sheep will be, in any parts that are not white. Every sheep inherits two genes of each series, one from each parent.

In the pattern series, called the Agouti locus, the gene most common in New Zealand prevents any colour except white. There are several genes for mixed patterns  - for example black and tan, sometimes called “mouflon”, with white belly and face markings, or badgerface with a coloured belly, light body and face markings - and one gene which makes the sheep the same colour all over  - known as “self colour”.

If a sheep inherits the gene for white pattern from either or both parents, it will be white. That is because the white gene is “dominant” over all the other genes at the Agouti locus. A white sheep may be carrying one of the other genes in the series (most often “self colour”) and on average will pass it on to half its lambs. If one of these white “carrier” sheep mates with another white “carrier” sheep, and if the offspring happen to inherit the coloured gene from both parents, the result is coloured lambs.

The actual colour of a coloured sheep depends on what genes it has inherited in the colour series, the Brown locus. Only two different genes are known: black, and the less common brown (often called “moorit”). Since black is dominant over brown, if a sheep is to be moorit it must inherit the moorit gene from both its parents. A sheep with one each of the black and the moorit genes will be black, but may pass the moorit gene on to its lambs.

Black and brown sheep actually come in various shades. Moorit lambs are coffee-coloured at birth, but their wool often lightens to a warm cream after a few years. Black lambs also lighten as they get older, sometimes ending up quite a pale grey. Wool also fades at the tips as it grows, due to the action of sunlight and weather: moorit becomes paler, and black/grey wool often becomes brownish at the tips. A black Romney in full fleece is sometimes mistaken for a moorit, but if the fleece is parted it will be seen that the wool nearer the skin, where it has been protected from sunlight, is actually black or grey.

There are several other gene series that can affect the appearance of colour in sheep. Notable in New Zealand is the Spotting locus. Spotting occurs particularly in Merinos or part-Merino breeds such as Polwarth, as well as Poll Dorset and crosses. It can give some spectacular piebald effects.