A local network of seven ocean bottom hydrophones was deployed on Axial volcano 14 days after the onset of seismic activity from the January 1998 diking/eruption episode. Eighty-one locatable microearthquakes were observed during a 166 day deployment. The first group of events, observed immediately after the eruption, cluster around the rim of the central caldera. These events are believed to be aftershocks from the major caldera collapse at the beginning of the diking event. The second group of events, observed 2--5 months after the eruption, are primarily located on a line striking 125¿ from the caldera onto the southeast shoulder of the volcano, with a few events extending into Helium basin to the north. These events are interpreted to result from horizontal shear associated with the CoAxial and Vance ridge segment offset, or extension across the Juan de Fuca/Pacific plate boundary underlying the eastern flank of Axial volcano. ¿ 1999 American Geophysical Union