The formation of dust with temperature-dependent non-grey opacity is considered in a series of self-consistent model atmospheres at different phases of an O-rich Mira variable of mass 1.2M0. Photometric and interferometric properties of these models are predicted under different physical assumptions regarding the dust formation. The iron content of the initial silicate that forms and the availability of grain nuclei are found to be critical parameters that affect the observable properties. For certain plausible parameter values, dust would form at 2-3 times the average continuum photospheric radius. This work provides a consistent physical explanation for the larger apparent size of Mira variables at wavelengths shorter than 1 μm than that predicted by dust-free fundamental-mode pulsation models.