Texture transparency not working as expected

I am trying to apply transparency to part of a character to prevent the skin from showing through the clothes. When I turn transparency on the transparent part of the texture seems to take on the colour of the surrounding pixels.
Here’s what I mean:

Does anyone have any idea how to fix this?

you need to do this:
[20630-picture+21.png|20630]

Transparent:Diffuse

Also make sure your texture has alpha.

if its blurry, change the compression too

“Alpha is transparency” is not for turning on the transparency. When you import an image with alpha channel, it already turned on the transparency until you change the texture format to something not support alpha channel. “Alpha is transparency” is to invert the alpha channel. You have to work on the Material if you want to make the GameObject has transparency. Set the material to use shader “Transparency/Diffuse”, I think it will be what you expect.

The Standard shader with it’s rendering mode set to Fade will allow you to have specular reflections turned on as well as the ability to shift the alpha to 0 and it should go transparent and disappear.