Understanding the mechanisms responsible for phenotypic diversification within and among species ultimately rests with linking naturally occurring mutations to functionally and ecologically significant traits. Colour polymorphisms are of great interest in this context because discrete colour patterns within a population are often controlled by just a few genes in a common environment. We investigated how and why phenotypic diversity arose and persists in the Zosterops borbonicus white-eye of Reunion (Mascarene archipelago), a colour polymorphic songbird in which all highland populations contain individuals belonging to either a brown or a grey plumage morph. Using extensive phenotypic and genomic data, we demonstrate that this melanin-based colour polymorphism is controlled by a single locus on chromosome 1 with two large-effect alleles, which was not previously described as affecting hair or feather colour. Differences between colour morphs appear to rely upon complex cis-regulatory variation that either prevents the synthesis of pheomelanin in grey feathers, or increases its production in brown ones. We used coalescent analyses to show that, from a ‘brown’ ancestral population, the dominant ‘grey’ allele spread quickly once it arose from a new mutation. Since colour morphs are always found in mixture, this implies that the selected allele does not go to fixation, but instead reaches an intermediate frequency, as would be expected under balancing selection.