Tissue-resident stem and progenitor cells are present in many adult organs, where they are important for organ homeostasis and repair in response to injury. However, the signals that activate these cells and the mechanisms governing how these cells renew or differentiate are highly context-dependent and incompletely understood, particularly in non-hematopoietic tissues. In the skin, melanocyte stem and progenitor cells are responsible for replenishing mature pigmented melanocytes. In mammals, these cells reside in the hair follicle bulge and bulb niches where they are activated during homeostatic hair follicle turnover and following melanocyte destruction, as occurs in vitiligo and other skin hypopigmentation disorders. Recently, we identified melanocyte progenitors in adult zebrafish skin. To elucidate mechanisms governing melanocyte progenitor renewal and differentiation we analyzed individual transcriptomes from thousands of melanocyte lineage cells during the regeneration process. We identified transcriptional signatures for progenitors, deciphered transcriptional changes and intermediate cell states during regeneration, and analyzed cell-cell signaling changes to discover mechanisms governing melanocyte regeneration. We identified KIT signaling via the RAS/MAPK pathway as a regulator of melanocyte progenitor direct differentiation and asymmetric division. Our findings show how activation of different subpopulations of mitfa-positive cells underlies cellular transitions required to properly reconstitute the melanocyte pigmentary system following injury.