Minecraft wiki entry for Dye, associated text: Dyes can be used on sheep to change the color of the wool. Shearing a colored sheep drops the corresponding color of the wool, and the sheep retains the color when the wool regenerates. Breeding colored sheep produces a lamb colored as one of the parent sheep, or a color resulting from the combination of both parents' color. The color combining follows the same rules that dyes use – red and yellow sheep produce an orange lamb, but a blue and yellow sheep cannot create a green lamb. The unlimited reproduction of colored sheep makes dyeing and shearing sheep infinitely more efficient than just dyeing wool directly.