Patterning of vertebrate melanophores is essential for mate selection and protection from UV-induced damage. Patterning can be influenced by circulating long-range factors, such as hormones, but it is unclear how their activity is controlled in recipient cells to prevent excesses in cell number and migration. The zebrafish wanderlust mutant harbors a mutation in the sheddase bace2 and exhibits hyperdendritic and hyperproliferative melanophores that localize to aberrant sites. We performed a chemical screen to identify suppressors of the wanderlust phenotype and found that inhibition of insulin/PI3Kγ/mTOR signaling rescues the defect. In normal physiology, Bace2 cleaves the insulin receptor, whereas its loss results in hyperactive insulin/PI3K/mTOR signaling. Insulin B, an isoform enriched in the head, drives the melanophore defect. These results suggest that insulin signaling is negatively regulated by melanophore-specific expression of a sheddase, highlighting how long-distance factors can be regulated in a cell-type-specific manner.