Melanin is the most common pigment in avian plumage and has various functions, including signalling individual condition, social status, aiding in camouflage and strengthening feathers. To date, most research focusing on melanin‐based colours has focused on eumelanin black and pheomelanin rusty traits. The occurrence and function of grey melanin‐based coloration, however, remains largely unstudied. Using colour plates from a bird identification guide and a comparative phylogenetic approach, we analysed the occurrence and relative patch size of grey plumage regions in 239 passerine species belonging to 36 families occurring in the Western Palaearctic. We proposed four hypotheses to explain the evolution of grey plumage: (1) protection from visually oriented predators, (2) badges of social information, (3) sexually selected ornaments, and (4) visual enhancement of badges and ornamental colour patches via high between‐colour contrast. We tested these hypotheses by analysing the occurrence and relative size of grey patches in relation to ecological and life‐history traits and the occurrence of other colours. Moreover, we surveyed the distribution of grey over avian body regions and its adjacency to other plumage colours. Grey coloration was present in 97 species from 25 families (40.5% of all species and 69.4% of all families sampled, respectively). Our results support the idea that grey plumage evolved to provide cryptic coloration and/or as a sexual signal used in female mate choice. Grey colour occurrence was associated with less concealed nest structure and open habitats, and this effect was especially pronounced in species in which males incubate. In both sexes, grey was more abundant on the head and back regions, which are the most visible body parts during incubation. The occurrence of grey was related to a greater dichromatism and was slightly higher in males than in females, which suggests that it could have evolved in response to female mate choice. No evidence suggests that grey plumage enhances ornamental colours or acts as a competitive signal. The study provides the first insight into potential functions of grey plumage in birds. Further studies at the species level are needed to test our findings.