Island arcs provide insights into the origin and recycling of continental crust, but questions remain concerning source metasomatism, the depth of differentiation, the potential role of amphibole fractionation, and the time scales involved. Basaltic andesites on Batan Island (Philippines) contain ≥150 Ma peridotite fragments encased in hornblendite and gabbroic rinds produced via melt-rock reaction. The peridotites have some of the lightest δ7Li and δ57Fe values yet measured in mantle rocks. These values are too fractionated to have been created solely by equilibrium partial melting and thus require a combination of melt depletion and slab fluid addition and may be derived from diffusion-modified melt channel wall rocks. Stable isotope signals are easily modified by diffusive equilibration between peridotite and host magma, so the preservation of light δ7Li and δ57Fe here suggests magma ascent rates of ∼10 km yr−1. We show that melt–wall rock reactions at ∼25–30 km depth led to the crystallization of amphibole (± plagioclase) followed by gabbroic fractionation at ∼7 km depth. The former provides a location and mechanism for the “cryptic” amphibole fractionation observed in these and perhaps many other arc lavas and may obviate the requirement for delamination of cumulates.