The Upper Permian Gröden Formation of the Northern Calcareous Alps (Austria) is composed of alluvial fan and playa lake sediments that were deposited in intramontane basins. A conspicuous feature of these redbeds is the abundance of magnesite in the form of nodules and discrete layers in mudstones as well as intergranular cement in sandstones. Sedimentological observations indicate that the bulk of these carbonates formed during early diagenesis and were probably syndepositional. Petrographically, most magnesites consist of micrite or, less commonly, microspar. An early non-ferroan magnesite is post-dated by later stage ferroan magnesites. Nodules consisting of recrystallized, sparry magnesite were observed only at one location. The general absence of relics of a non-magnesite precursor mineral and the occurrence of shrinkage features suggest that the fine grained magnesites formed by transformation of a hydrated magnesium carbonate mineral, e.g. hydromagnesite. Carbon, oxygen, sulphur and strontium isotope ratios in conjunction with sedimentological criteria support a model of (hydro)magnesite precipitation in an inland playa lake system, which was fed by run-off from the surrounding hinterland. The scarcity of evaporites and the dominance of magnesite over calcite and dolomite suggest that the playa lake brines were low in sulphate and had high Mg/Ca ratios. The source for the high magnesium concentrations is thought to be the weathering of Devonian dolostones and associated massive magnesite deposits in the catchment area.