TOPEX/Poseidon satellite altimeter observations and the Naval Research Laboratory Layered Ocean Model simulations show interannual variability in the number and intensity of Tehuantepec eddies off the Mexican southwest coast. Analysis of the results illustrates that downwelling coastally trapped waves, which are generated in the equatorial Pacific, play a crucial role in the modulation and generation of Tehuantepec eddies and a dominant role in Tehuantepec eddy interannual variability. This introduces a new paradigm in which the generation and modulation of Tehuantepec eddies is not exclusively explained in terms of the strong and intermittent Tehuantepec wind events. In fact, the results show anticyclonic eddy formation during periods of calm Tehuantepec winds. That is specifically exemplified by the formation of two anticyclonic Tehuantepec eddies during a 5-month period of weak Gulf of Tehuantepec winds during summer of 1997. Furthermore, the satellite-observed and NLOM-simulated proliferation of Tehuantepec eddies during El Ni¿o years is explained by the corresponding increase in downwelling coastally trapped waves and a lack of increase in the number and strength of Tehuantepec wind events during El Ni¿o years.