Iridescence appears in the sky as irregular patches of color in mid level clouds that are adjacent to the Sun or Moon. They occur when light is diffracted around water droplets, or ice crystals, that are contained within the clouds. The size of water droplets, or ice crystals, determines the type of phenomenon that will be created. Iridescence is created by small water droplets, or ice crystals, that individually scatter light. Larger ice crystals will produce halos, and larger raindrops create rainbows.
When areas of the clouds have water droplets, or ice crystals, of the same size their combined effect is seen by the observer as colors. The cloud must be thin so the light rays can encounter each droplet. For this reason, iridescence is generally seen along the edges of clouds, in semi-transparent clouds, or clouds that are just beginning to form. When a thin cloud contains water droplets of the same size over a large area the iridescence appears to be more on the order of a corona, which appears as a bright disk around the Sun or Moon. They more often occur in altocumulus, cirrocumulus and lenticular clouds, and are seen best when the clouds are first forming since the water droplets at that stage are still similar in size.
The colors that the observer sees from the ground not only depends on the size of the water droplets, but also the angle at which the observer is viewing them. Blue is generally the more prominent color, but reds and greens can also occur. The strongest colors are produced by iridescence that is associated with the Sun, however, the brightness of the Sun may affect the observer's ability to see them. Moonlight produces paler colors, but they are easier to see since the observer is not blinded by the bright sunlight.