Dynamic color change has evolved multiple times, with a physiological basis that has been repeatedly linked to dermal photoreception via the study of excised skin preparations. Despite the widespread prevalence of dermal photoreception, both its physiology and its function in regulating color change remain poorly understood. By examining the morphology, physiology, and optics of dermal photoreception in hogfish (Lachnolaimus maximus), we describe a cellular mechanism in which chromatophore pigment activity (i.e., dispersion and aggregation) alters the transmitted light striking SWS1 receptors in the skin. When dispersed, chromatophore pigment selectively absorbs the short-wavelength light required to activate the skin’s SWS1 opsin, which we localized to a morphologically specialized population of putative dermal photoreceptors. As SWS1 is nested beneath chromatophores and thus subject to light changes from pigment activity, one possible function of dermal photoreception in hogfish is to monitor chromatophores to detect information about color change performance. This framework of sensory feedback provides insight into the significance of dermal photoreception among color-changing animals