Chromatophores are pigment-rich, light-reflecting cells found in amphibians, fish, reptiles and cephalopods, such as squid. The cells dictate eye and skin colour and, in some species, allow the bearer to adopt a colour-changing camouflage when stimulated by heat, stress and other factors -- a process known as metachrosis. The camouflage is also used in communication.
Squid rapidly change colour when the muscles surrounding a chromatophore-filled sac contracts and expands -- when it contracts, the pigment appears denser, when it expands the colour becomes muted and disappears. The squid changes its colour according to exterior factors -- such as a threat or the presence of a potential mate - because each chromatophore is linked to a nerve ending.
Marine biologist Michael Bok took advantage of a squid with skin cells still active despite being shipped on ice, to make this video. Link -via Not Exactly Rocket Science