Researchers conducted the first in-depth study of the dinosaur named Caihong juji.
"Iridescent colouration is well known to be linked to sexual selection and signalling, and we report its earliest evidence in dinosaurs," said Julia Clarke, a professor at the University of Texas at Austin.
"The dinosaur may have a cute nickname in English, Rainbow, but it has serious scientific implications," said Clarke.
Aside from making Jurassic ecosystems of 161 million years ago more colourful, the dinosaur is interesting because it has features that are both ancient and modern, said Xing Xu, a professor at the Chinese Academy of Sciences.
"There are crests associated with sexual selection previously known only in earlier dinosaurs, and yet there is also a bird mechanism of signalling or display appearing for the first time," said Clarke.
Caihong is also the earliest known dinosaur with asymmetrical feathers, the feather type found on the wingtips of modern birds that helps control flight.
"The tail feathers are asymmetrical but wing feathers are not, a bizarre feature previously unknown among dinosaurs including birds," said Xu.
"This suggests that controlling flight might have first evolved with tail feathers during some kind of aerial locomotion," he said.
The slab of rock from China's Hebei Province where the dinosaur was discovered by a farmer in 2014 contained a nearly complete skeleton surrounded by impressions made by feathers. The impressions preserved the shape of the melanosomes.
Caihong is part of a group of small, bird-like dinosaurs that lived in China during the Jurassic, but it stands out even among its closest relatives, Xu said.
While the other dinosaurs have bird-like, triangular skulls and long forearm bones in comparison to birds today, Caihong had a long and narrow skull, and unlike many of these other dinosaurs, its short forelimbs show proportions more akin to modern birds.
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