The Kailas basin developed during late Oligocene–early Miocene time along the Indus-Yarlung suture zone in southwestern Tibet. The >2.5-km-thick basin-filling Kailas Formation consists of a lower coarse-grained proximal conglomerate and more distal fluvial sandstone member, a lacustrine shale and sandstone member, and an upper red-bed clastic member. Felsic tuffs and trachyandesite layers are locally present. Detrital and igneous zircon U-Pb ages indicate deposition of most of the Kailas Formation between ca. 26 and 24 Ma. The Kailas Formation was deposited by alluvial-fan, low-sinuosity fluvial, and deep lacustrine depositional systems in buttress unconformity upon andesitic volcanic (ca. 67 Ma) and granitoid (ca. 55 Ma) rocks of the Gangdese magmatic arc. Abundant organic material, fish and amphibian fossils, and sparse palynomorphs suggest that Kailas lakes developed in a warm tropical climate, quite different from coeval basins in central Tibet, which formed at high elevation in a dry climate. Provenance and paleocurrent data indicate that the bulk of the Kailas Formation was derived from the northerly Gangdese magmatic arc (Kailas magmatic complex). Only during the latest stages of basin filling was abundant sediment derived from the southerly Tethyan Himalayan thrust belt in the hanging wall of the Great Counter thrust. Kailas basin stratigraphy resembles a classic lacustrine sandwich and is most consistent with deposition in an extensional or transtensional rift that developed along the suture zone some 30 m.y. after the onset of Indo-Eurasian intercontinental collision. Correlative coarse-grained syntectonic strata similar to the Kailas Formation crop out along a >1300 km length of the Indus-Yarlung suture zone, suggesting that the basin-forming mechanism recorded by the Kailas Formation was of regional significance and not exclusively related to local kinematics near the southeastern end of the Karakoram fault. We propose that extension of the southern edge of the Eurasian plate was caused by southward rollback of underthrusting Indian continental lithosphere, followed by slab break-off. Alternating episodes of hard and soft collision, associated with regional contraction and extension, respectively, in the Tibetan-Himalayan orogenic system may have been related to changing dynamics of the subducting/underthrusting Indian plate.