Nature's best-known example of colorful, changeable, and diverse skin patterning is found in cephalopods. Color and pattern changes in squid skin are mediated by the action of thousands of pigmented chromatophore organs in combination with subjacent light-reflecting iridophore cells. Chromatophores (brown, red, yellow pigment) are innervated directly by the brain and can quickly expand and retract over underlying iridophore cells (red, orange, yellow, green, blue iridescence). Here, we present the first spectral account of the colors that are produced by the interaction between chromatophores and iridophores in squid (Loligo pealeii). Using a spectrometer, we have acquired highly focused reflectance measurements of chromatophores, iridophores, and the quality and quantity of light reflected when both interact. Results indicate that the light reflected from iridophores can be filtered by the chromatophores, enhancing their appearance. We have also measured polarization aspects of iridophores and chromatophores and show that, whereas structurally reflecting iridophores polarize light at certain angles, pigmentary chromatophores do not. We have further measured the reflectance change that iridophores undergo during physiological activity, from "off" to various degrees of "on", revealing specifically the way that colors shift from the longer end (infra-red and red) to the shorter (blue) end of the spectrum. By demonstrating that three color classes of pigments, combined with a single type of reflective cell, produce colors that envelop the whole of the visible spectrum, this study provides an insight into the optical mechanisms employed by the elaborate skin of cephalopods to give the extreme diversity that enables their dynamic camouflage and signaling.