Abstract The past decade has witnessed spectacular progress in the collection of observational data and their interpretation in the Pannonian Basin and the surrounding Alpine, Carpathian and Dinaric mountain belts. A major driving force behind this progress was the PANCARDI project of the EUROPROBE programme. The paper reviews tectonic processes, structural styles, stratigraphic records and geochemical data for volcanic rocks. Structural and seismic sections of different scales, seismic tomography and magnetotelluric, gravity and geothermal data are also used to determine the deformational styles, and to compile new crustal and lithospheric thickness maps of the Pannonian Basin and the surrounding fold-and-thrust belts. The Pannonian Basin is superimposed on former Alpine terranes. Its formation is a result of extensional collapse of the overthickened Alpine orogenic wedge during orogen-parallel extrusion towards a ‘free boundary’ offered by the roll-back of the subducting Carpathian slab. As a conclusion, continental collision and back-arc basin evolution is discussed as a single, complex dynamic process, with minimization of the potential and deformational energy as the driving principle.