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Penguin feathers are highly modified in form and function, but there have been no fossils to inform their evolution. A giant penguin with feathers was recovered from the late Eocene (~36 million years ago) of Peru. The fossil reveals that key feathering features, including undifferentiated primary wing feathers and broad body contour feather shafts, evolved early in the penguin lineage. Analyses of fossilized color-imparting melanosomes reveal that their dimensions were similar to those of non-penguin avian taxa and that the feathering may have been predominantly gray and reddish-brown. In contrast, the dark black-brown color of extant penguin feathers is generated by large, ellipsoidal melanosomes previously unknown for birds. The nanostructure of penguin feathers was thus modified after earlier macrostructural modifications of feather shape linked to aquatic flight.