Palomino is one copy of the cream dilution (CR) with chestnut. The cream dilution mutation is found on the MATP gene. Cream is an incomplete dominant, meaning it cannot skip generations and one copy of cream looks different than two copies. Palominos have lightened body color and the mane and tail are white. The eyes and skin of palominos are dark. There is a genetic test available for the cream dilution.
It is not known when the cream dilution was first introduced into Chincoteagues. The palomino Misty was foaled in 1946 so it would have been at some point prior to that year. It may have existed early in the breed as there are a few accounts describing ponies as dun. Dun is traditionally used to describe buckskins and the term is still used today in parts of Europe. A 1891 article in the New York City newspaper The Sun stated that the ponies "are most frequently black, gray, sorrel, or dun." Additionally the 1910 Pittsburgh Times stated that "White and dun-colored ponies are exceedingly rare." A 1923 St. Petersburg Times article described the ponies as "bay, gray, dun, black, and sorrel". Conversely Leonard D. Sale wrote in 1896 in The Horse Review of Chicago that, "I have never yet seen a grey, piebald, dun, or yellow purely bred island pony."