Peppers (Capsicum spp.) display a variety of fruit colors that are reflected by the composition and amount of diverse carotenoid pigments accumulated in the pericarp. Three independent loci, c1, c2, and y, are known to determine the mature color of pepper fruits by their allelic combinations. We examined the inheritance of fruit color in recombinant inbred lines (RILs) derived from an interspecific cross between C. annuum cv. TF68 (red) and C. chinense cv. Habanero (orange). The c2 gene encodes phytoene synthase (PSY), a rate-limiting enzyme in the carotenoid biosynthesis pathway. TF68 has a dominant c2+ allele whereas Habanero is homozygous for the recessive c2 allele, which determined RIL fruit color. Here we report that the recessive c2 allele has a point mutation in the PSY gene that occurs at a splice acceptor site of the fifth intron leading to both a frame shift and premature translational termination, suggesting that impaired activity of PSY is responsible for orange fruit color. During ripening, PSY is expressed at a significantly high level in orange colored fruits compared to red ones. Interestingly, the PSY gene of red Habanero has a conserved splice acceptor dinucleotide AG. Further analysis suggests that red Habanero is a wild type revertant of the PSY mutant orange Habanero.