Chameleons do have pigmented cells (in brown, red and yellow) that they manipulate when changing color. But led by Michel Milinkovitch of the University of Geneva, researchers found that they also have two layers of light-reflective cells. Inside these cells are crystals of varying sizes. By relaxing or twitching their skin, they can change the way these little crystals are arranged, thereby changing the way their skin reflects light.
The researchers also found a deeper layer of these reflective cells. In these cells, the crystals were larger and less ordered. The researchers believe that they're designed to reflect infrared light, protecting chameleons from the heat of intense sun exposure.