Mushroom is a unique coat color phenotype in Shetland Ponies characterized by the dilution of the chestnut coat color to a sepia tone and is hypothesized to be a recessive trait. A genome wide association study (GWAS), utilizing the Affymetrix 670K array (MNEc670k) and a single locus mixed linear model analysis (EMMAX), identified a locus on ECA7 for further investigation (P = 2.08 × 10). This locus contained a 3 Mb run of homozygosity in the 12 mushroom ponies tested. Analysis of high throughput Illumina sequencing data from one mushroom Shetland pony compared to 87 genomes from horses of various breeds, uncovered a frameshift variant, p.Asp201fs, in the MFSD12 gene encoding the major facilitator superfamily domain containing 12 protein. This variant was perfectly concordant with phenotype in 96 Shetland Ponies (P = 1.15 × 10), was identified in the closely related Miniature Horse for which the mushroom phenotype is suspected to occur (f = 0.02), and was absent in 252 individuals from seven additional breeds not reported to have the mushroom phenotype. MFSD12 is highly expressed in melanocytes and variants in this gene in humans, mice, and dogs impact pigmentation. Given the role of MFSD12 in melanogenesis, we propose that p.Asp201fs is causal for the dilution observed in mushroom ponies.