Lyons Lagoon, one of many small pans near Darwin, Northern Australia, occurs in lateritized terrain. Formation by structurally facilitated silicate karstification of the parent Cretaceous sandy sediments was earlier proposed. This paper presents the results of thin section microscopy and scanning electron microscopy with energydispersive X-ray study of pan sediments with a view to assessing the extent to which they reflect the geomorphological/hydrogeological history. Severe corrosion was found to overprint the impact features of the primary sands, attributed to aggressive leaching and consistent with formation of the depression by karstification when the water table was low. Formation of a smectitic matrix is considered to have followed when the water table was high. Upon subsequent lowering of the water level leaching was resumed, altering smectite to kaolinite and resulting in incongruent dissolution of kaolinite to leave a siliceous residuum. At least two cycles of high followed by low water levels are recognized. Such periodic changes of levels are considered essential to pan formation within freely draining lateritic terrain. The processes of pan formation and alteration of pan sediments (essentially residual deposits) is ongoing, biocorrosion being implicated as an important mechanism. Incongruent kaolinite dissolution, to leave a silica residuum, a hitherto apparently unrecognized process, raises the possibility that silcrete may form as a relative accumulation which is synchronous with lateritic leaching in more elevated topographic positions.