2-Methyl-5-Hydroxyethylaminophenol is used in permanent hair coloring systems where color is produced inside the hair fiber. This is accomplished through careful formulation of the product so that the ingredients interact in a highly controlled process.

Hair dyeing formulations belong to three categories – temporary, semi-permanent and permanent coloring of hair. The permanent hair dyeing formulations are often referred to as oxidative hair dyes which are generally marketed as two-component products. One component contains the compounds (precursors) that become the colorants and the other component is a stabilized solution of hydrogen peroxide. The two components are mixed immediately prior to use. The precursors and peroxide diffuse into the hair shaft, where color formation takes place after the ingredients combine to produce the coloring mixture. The precursors are oxidized by the hydrogen peroxide to form the colorant molecules. These molecules are too large to escape from the hair structure. The hydrogen peroxide in the oxidative hair dye product also serves as bleaching agent for the natural pigment of the hair. The color that is formed depends on the precursors and direct dyes present in the dyeing solution, pH of the dyeing solution and the time of contact of the dyeing solution with the hair.