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The Leatherback morph in bearded dragons is caused by a single copy of a mutated gene, which appears to interfere with scale formation during embryonic development. Dragons showing this trait have scales reduced in size, giving them a much smoother, less spiky appearance. The smaller scales can also lead to improvements in colour and pattern.
The reduced scales and general "smooth" appearance can be seen in this dragon:

Leatherback is inherited in a co-dominant fashion. Because of this, a "het" animal is a visual Leatherback. A homozygous animal is actually a scaleless "Silkback". This means that it's not possible for an animal to be "het Leatherback" unless it actually looks like a Leatherback - don't be fooled by conmen or people who have misunderstood the genetics of the morph! The same goes for "Leatherback Line" or "Leatherback Sib" dragons - these are the non-Leatherback babies from a Leatherback cross, and have no Leatherback in them.
There are also so-called "US Smoothie" available. These appear the same as Leatherbacks and are compatible with Leatherbacks (ie US Smoothie x Leatherback will give around 25% Silkbacks). To all intents and purposes these are the same morph and may conceivably be the same gene under two different names!
Contrary to a myth often spread around online forums, Leatherbacks weren't created by "decades of inbreeding" or by "various chemicals" or even "genetic enginerring in a test tube"! An unusual baby hatched from a clutch produced by an Italian breeder. He grew it to adult size and bred it to a normally-scaled dragon, getting roughly half normal babies and half reduced-scaled babies (the first generation of Leatherbacks).
The mutation would likely have taken place in the egg or sperm of one of the original parents - it was a one-off chance event, with no inbreeding necessary!
Like the other "simple" traits, Leatherback is compatible with other morphs, giving even more scope for novel combinations! This is a sub-adult Red Hypo Leatherback, partially in shed:

We are expecting a number of Leatherback beardies (many being visual or het Hypo / Trans) throughout 2010 - check our For Sale and Future Plans pages for more details!