The extensional Pannonian Basin was formed in a few million years during Miocene time synchronously with contraction in the surrounding Alpine and Carpathian orogens. This system is characteristic of a class of extensional basins that form in the midst of active orogenic (mountain-forming) belts. The mechanism that causes this type of geological event is enigmatic but usually has been associated with subduction. We examine a new hypothesis for intra-orogenic extensional basin formation in which gravitational spreading of previously thickened crust triggers gravitational instability of the mantle lithosphere. A basin is formed by lithospheric extension as shortening and lithospheric downwelling occur in the surrounding mountain belts. This mechanism provides a mechanically self-consistent explanation for all of the main structural features of the Pannonian-Carpathian system and presents a plausible alternative to the popular view that subduction and slab rollback have driven the development of this basin.