The site 1 protease, encoded by Mbtps1, mediates the initial cleavage of site 2 protease substrates, including sterol regulatory element binding proteins and CREB/ATF transcription factors. We demonstrate that a hypomorphic mutation of Mbtps1 called woodrat (wrt) caused hypocholesterolemia, as well as progressive hypopigmentation of the coat, that appears to be mechanistically unrelated. Hypopigmentation was rescued by transgenic expression of wild-type Mbtps1, and reciprocal grafting studies showed that normal pigmentation depended upon both cell-intrinsic or paracrine factors, as well as factors that act systemically, both of which are lacking in wrt homozygotes. Mbtps1 exhibited a maternal-zygotic effect characterized by fully penetrant embryonic lethality of maternal-zygotic wrt mutant offspring and partial embryonic lethality (~40%) of zygotic wrt mutant offspring. Mbtps1 is one of two maternal-zygotic effect genes identified in mammals to date. It functions nonredundantly in pigmentation and embryogenesis.