You've probably seen a rainbow before. When sunlight passes through raindrops in the sky, the light is split into the colors the rainbow. If you have the right angle, you can see the full band of rainbow stretch across the sky. Sometimes you can even see the mirror image of the band, or the full double rainbow.
But have you ever seen a rainbow cloud?
This can happen because of something called cloud iridescence. It usually happens in altocumulus, cirrocumulus, lenticular and cirrus clouds. It's the same basic concept as a rainbow. Small water droplets or small ice crystals scatter the sun's light.
Why doesn't this happen more often?
Cloud iridescence is relatively rare. The cloud must be thin and have lots of water droplets or ice crystals of about the same size. When that happens, the suns rays encounter just a few droplets at at time. For this reason, semi-transparent clouds or clouds that are just forming are the ones most likely to have iridescence.