Abstract Background Animal pigmentation has received much attention in evolutionary biology research due to its strong implications for adaptation and speciation. However, apart from a few cases the genetic changes associated with these evolutionary processes remain largely unknown. The Midas cichlid fish from Central America are an ideal model system for investigating pigmentation traits that may also play a role in speciation. Most Midas cichlids maintain their melanophores and exhibit a grayish (normal) color pattern throughout their lives. A minority of individuals, however, undergo color change and exhibit a distinctive gold or even white coloration in adulthood. The ontogenetic color change in the Midas cichlids may also shed light on the molecular mechanisms underlying pigmentation disorders in humans. Results Here we use next-generation sequencing (Illumina) RNAseq analyses to compare skin transcriptome-wide expression levels in three distinct stages of color transformation in Midas cichlids. cDNA libraries of scale tissue, for six biological replicates of each group, were generated and sequenced using Illumina technology. Using a combination of three differential expression (DE) analyses we identified 46 candidate genes that showed DE between the color morphs. We find evidence for two key DE patterns: a) genes involved in melanosomal pathways are up-regulated in normally pigmented fish; and b) immediate early and inflammatory response genes were up-regulated in transitional fish, a response that parallels some human skin disorders such as melanoma formation and psoriasis. One of the DE genes segregates with the gold phenotype in a genetic cross and might be associated with incipient speciation in this highly “species-rich” lineage of cichlids. Conclusions Using transcriptomic analyses we successfully identified key expression differences between different color morphs of Midas cichlid fish. These differentially expressed genes have important implications for our understanding of the molecular mechanisms underlying speciation in this lineage of extremely young species since they mate strongly assortatively, and new species may arise by sexual selection due to this color polymorphism. Some of the human orthologues of the genes identified here may also be involved in pigmentation differences and diseases and therefore provide genetic markers for the detection of human pigmentation disorders.