An ocean general circulation model coupled to an atmospheric boundary-layer model is used to investigate the seasonal cycle and interannual anomalies of water mass transformation in the upper tropical Indian Ocean. Within the thermocline of the tropical Indian Ocean diapycnal mixing as well as surface buoyancy fluxes are prime contributors to water mass formation. The seasonal cycle of thermocline water mass transformation in the Indian Ocean is associated with surface density fluxes and interior mixing. It is balanced by advection (overturning) and volumetric density changes due to the unsteadiness of the circulation. North of 7¿S and during the Northeast Monsoon (DJFM), thermocline water is lost at a rate of up to 17 Sv. During the Southwest Monsoon (MJJASO), thermocline water gains volume at a rate of up to 8 Sv. On annual mean the upper tropical Indian Ocean loses water mass to the deeper layers (-3.1 Sv). Owing to the deep-reaching overturning cell in the Indian Ocean seasonal formation rates of thermocline water are closely linked to the seasonal cycle of heat transport across 7¿S. Regional formation is strongest in the equatorial Indian Ocean with a strong semiannual signal. Interannual variability in the tropical Indian Ocean generates diabatic changes of water mass characteristics in the upper ocean with significant anomaly amplitudes in the formation of thermocline water for the 1982-1998 period (+6 Sv to -4 Sv). Furthermore, interannual anomalies of regional water mass formation correlate at -0.7 (western equatorial Indian Ocean) and at +0.8 (eastern equatorial Indian Ocean) with equatorial zonal wind stress anomalies. The model results suggest that interannual variability in the upper tropical Indian Ocean does not only contain a strong (predominantly adiabatic) east-west component but also involves significant diabatic changes.