The sediments at a site situated among high-temperature vents in the Grimsey Graben (Tjörnes Fracture Zone, north of Iceland) exhibit features of strong hydrothermal alteration: (1) almost total dissolution of the volcaniclastic material composing the background sediment; (2) sulfate and sulfide precipitation; (3) kaolinitisation. Smectite, precipitated in the shallowest sediment, is gradually replaced downward by mixed-layer kaolinite/smectite and pure, well-crystallised kaolinite. The kaolinite/smectite is interstratified with up to 10% swelling smectitic layers. According to the oxygen isotope composition kaolinite/smectite mixed-layer mineral most likely formed at temperatures near 160 °C. The vertical sequence kaolinite→kaolinite/smectite→smectite as well as the distinct zonation across the kaolinitic veins (almost pure kaolinite in the central zone and kaolinite/smectite along the rim) suggest hydrothermal transformation of initially formed smectite→kaolinite/smectite→kaolinite. Most probably this conversion occurred in an evolving (from alkaline to slightly acidic) hydrothermal environment.