The Ilan Basin of northern Taiwan forms the western limit of the Okinawa Trough, where the trough meets the compressional ranges of central Taiwan. Apatite fission-track ages of 1.2 ± 0.5 Ma and 3.5 ± 0.5 Ma, measured north and south of the basin, respectively, indicate faster exhumation rates in the Hsüehshan Range to the north (>1.6 mm/yr) than in the Backbone Range to the south (0.7 mm/yr). Reconstructed subsidence rates along the northern basin margin are also faster than in the south (6–7 compared with 3–5 mm/yr). Global positioning system (GPS) and active seismological data indicate motion of the southern basin margin to the east and southeast. We propose that the Ilan Basin is being formed as a result of extension of northern Taiwan, largely controlled by a major southeast-dipping fault, modeled at ∼30° dip, and mapped as a continuation of the Lishan Fault, a major thrust structure in the Central Ranges. Flexural rigidity of the lithosphere under the basin is low, with elastic thickness ∼3 km. A southwest-migrating collision between the Luzon Arc and southern China, accompanied by subduction polarity reversal in the Ryukyu Trench, has allowed crustal blocks that were previously held in compression between the Eurasian and Philippine Sea plates to move trenchward as they reach the northern end of the collision zone. Subduction polarity reversal permits rapid extension and formation of the Ilan Basin and presumably, at least, the western Okinawa Trough, as a direct consequence of arc-continent collision, not because of independent trench rollback forces. This conceptual model suggests that migrating arc-continent collision causes the rapid formation of deep marginal basins that are then filled by detritus from the adjacent orogen, and that these should be common features in the geologic record.