Small lakes and ponds along the margins of estuaries and lagoons contain valuable records of paleo–sea level, past storm frequencies, and climatic change. Critical to their use in such studies is an understanding of their evolution. Using aerial photos, surveyed elevation profiles, and vibracores, we describe the geomorphic and stratigraphic evolution of ponds whose sedimentary floors range in elevation from −0.8 to +0.8 m above sea level on the margins of Baffin Bay in semiarid south Texas. These ponds are in various stages of evolution providing an excellent opportunity to study their formation. We see a three-stage evolution of (1) eolian deflation and creation of pond, (2) creation of a pathway to the open bay via headward-eroding gullies, and (3) open communication with the bay via a small tidal inlet. Each of these stages of evolution has a unique sedimentary facies associated with it. Combined with elevation and age control, the sedimentary facies from these ponds and two other cores from adjacent Baffin Bay are used to evaluate a proposed mid-Holocene sea-level highstand within the Gulf of Mexico. Deposits from these cores suggest that Holocene sea level in the Gulf of Mexico did not reach above +0.4 m and did not reach above −1.2 m until sometime after 5.6 ka. Algal mats from cores in Baffin Bay suggest sea level was −7.6 ± 1.1 m 5.6 ka. The sea-level constraints suggested by these ponds are in agreement with more traditional reconstructions of sea level since the mid-Holocene within the Gulf of Mexico. In addition to testing a higher-than-present mid-Holocene highstand within the northwestern Gulf of Mexico, we also provide an evolutionary model for the development of these ponds illustrating the important interaction between eolian and estuarine processes.