There are a few different painting applications on the iPhone that support layers, but none of them do quite so gorgeous of a job at displaying and managing them then Layers.  Simply click the layers button at the bottom left of the app and you get a quick animated transition to a 3D view where each layer is shown as a semi-transparent plane.  Click a layer to make it the active layer you’re painting on, drag layers to rearrange them and double tap to get back to painting.

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