The recent discovery of a phase transformation in Fe0.94O by Jeanloz and Ahrens has allowed a more detailed development of a model for core formation involving oxygen as the principal light alloying element in the core. It is predicted, based on calculations, that an increasing pressure in the system FeO-MgO will result in a gradual exsolution of an almost pure high-pressure phase FeO(hpp), leaving an iron-depleted (Fe,Mg)O rocksalt (B1) phase. We also predict that FeO(hhp) will form a low-melting point alloy with Fe at high temperature and high pressure. On the basis of our interpretations, we have constructed a model for core segregation. Assuming the earth to have accreted from the primordial solar nebula as a relatively homogeneous mixture of metallic iron and silicate-oxide phases, core segregation involving oxygen would commence at a depth where pressure is sufficiently high to cause exsolution of FeO(hpp) from the rocksalt phase, and temperature is sufficiently high to allow formation of an Fe-FeO(hpp) melt. A gravitational instability arises, leading to vertical differentiation of the earth as molten blobs of the metal sink downwards to form the core and the residual depleted silicate material coalesces to form large bodies which rise diapirically upwards to form the mantle.