Diamond which is chemically pure and structurally perfect is perfectly transparent with no hue or color. The color of the diamond is affected by chemical impurities or even structural defects in the crystal lattice. The color of a diamond can either detract from or enhance its value so most white diamonds are discounted in price whereas more yellow hue is detectable, while intense pink or blue diamonds can be more valuable. Out of all the colored diamonds, red diamonds are the most rarest of all.

Diamonds may occur in a restricted variety of colors like white, blue, yellow, steel gray, orange, pink, green, purple, brown, and black. Colored diamond contains impurities or structural defects that cause the coloration, whilst pure diamonds are perfectly transparent and colorless. Diamonds are scientifically classified into two main types. The first type has Nitrogen atom as main impurities. If nitrogen atoms are in pairs they do not affect the diamond's color, but if the nitrogen atoms are in large even-numbered aggregates they impart a yellow to brown tint. If the nitrogen atoms are dispersed throughout the crystal in isolated sites ( not paired or grouped), they give the stone an intense yellow or occasionally brown tint.

The second type diamonds have no measurable nitrogen impurities. These diamonds absorb in a different region of the infrared, and transmit in the ultraviolet below 225 nm. They have distinct fluorescence characteristics, but no discernible visible absorption spectrum. Such diamonds can be colored pink, red or brown due to structural anomalies arising through plastic deformation during crystal growth. The majority of the diamonds that are mined are in the range of pale yellow or brown color that is also termed as normal color range. Diamonds that are of intense yellow or brown, or any other color are called as fancy diamonds. Diamonds that are of very highest purity are totally colorless, and appear a bright white. The degree to which diamonds exhibit body color is one of the four value factors by which diamonds are assessed.

Diamond color is graded by comparing a sample stone to a masterstone set of diamonds. Each masterstone is known to exhibit the very least amount of body color that a diamond in that color grade may exhibit. When sample stones are compared with the masterstone, the grader assesses whether the sample has more, less or equal color to the masterstones.

A typical grading set of masterstones would contain five diamonds in two grade increments. The intermediate grades are assessed by the graders judgement.