It makes the user invisible to enemies, until she gets very close to them or starts shooting. She can make stealth attacks that way. You know when your Ninja is invisible when she starts getting transparent, blending with the background. You can still see her figure moving, for easier controlling. When enemy ninjas use Chameleon, they are completely invisible until they start shooting at you. All Ninjas in mission Ninja Nights have Chameleon trait. Rusty can also get the trait as an upgrade. However, Chameleon does not work in normal gun game or team gun games.
In Devs De La Muerte, this trait is used by Justin and Mike, which is part of their true forms.