Hi Mike,Thanks for the reply.No, it was not a service level setting, it was the image format I was using.I indeed had done this before, but it took me a while to remember what I did exactly..So what solved the problem was setting the ImageFormat of the DynamicMapServiceLayer to PNG32, and that made the labels background transparent.<esri:ArcGISDynamicMapServiceLayer ID="USA Demographic" Url="path to layer" ImageFormat="PNG32"/>Miri.