The aim of this work is to explore a new method for producing color-alternation fancy yarn on a modified compact spinning machine. Color-alternation fancy yarn is a new kind of fancy yarn with varying color effects along the yarn axis. The modified compact spinning machine produces double-channel compact spinning, which has two coaxial back rollers in a drafting unit. In this spinning process, two different colored rovings are alternately fed into each back roller to produce alternant color effects along the yarn axis. The mean length of the connecting piece between of two different solid color pieces of this yarn is the key research subject. Mathematical equations have been derived to describe the relationship between the mean length of the connecting pieces, the mean length of the wedged broken end of roving, the mean overfeeding length of the roving and the total draft ratio. The effect of the total draft ratio and overfeeding length on yarn properties, such as tenacity, elongation and yarn evenness, was studied. The results indicate that a relatively small total draft ratio is beneficial to shorten the mean length of the connecting pieces, enhance the tensile property and improve yarn evenness.