Small, circular holes, lined with a thin gypsum veneer, and closely associated with gypsum tumuli (domes), occur at Salar de Pajonales, a salt flat in the northern Andes, Chile. We propose a model in which the formation of the gypsum‐lined holes, and less commonly the formation of the tumuli itself, is controlled by the unique juxtaposition of physiographic, geologic and hydrologic conditions. On a regional scale, Salar de Pajonales is unusual compared to other salars, as it is located close to a large magmatic inflation centre (Lazufre), lies along strike of major regional structural trends, is a large ephemeral lake and contains high salt concentrations. On a basin scale, the lined holes are only present along strike of lineaments that are directly linked to the local stress regime. In turn, these lineaments control the location of degassing and subsequently the formation of the lined holes in the gypsum tumuli and, in part, the tumuli themselves.