The largest earthquake swarm yet recorded on Loihi submarine volcano took place in July and August of 1996. The swarm consisted of two phases of seismic activity and was associated with the formation of a pit crater and additional faulting of Loihi's summit platform. The first phase of activity was comprised of predominantly high-frequency events scattered over the southern flanks of the volcano. Following a day of seismic quiescence, the second phase of activity began, consisting of lower-frequency earthquakes with strong T-phases. The phase 2 events took place beneath Loihi's summit, presumably marking the formation of the pit crater, Pele's Pit. Data obtained by an ocean-bottom seismometer (OBS) on Loihi during the swarm help constrain a new velocity model for Loihi. The relocated earthquakes, combined with other characteristics of the swarm, enabled us to develop a model for the events leading up to the formation of Pele's Pit that includes (1) a prolonged eruption, (2) a tectonic event beneath Loihi's south flank, and (3) the drainage of a shallow magma chamber.