Abstract The water mass transformation (WMT) framework describes how water of one class, such as a discrete interval of density, is converted into another class via air–sea fluxes or interior mixing processes. This paper investigates how this process is modified at the surface when mesoscale ocean eddies are present, using a state-of-the-art high-resolution climate model with reasonable fidelity in the Southern Ocean. The method employed is to coarse-grain the high-resolution model fields to remove eddy signatures, and compare the results with those from the full model fields. This method shows that eddies reduced the WMT by 2–4 Sv (10%–20%; 1 Sv ≡ 106 m3 s−1) over a wide range of densities, from typical values of 20 Sv in the smoothed case. The corresponding water mass formation was reduced by 40% at one particular density increment, namely, between 1026.4 and 1026.5 kg m−3, which corresponds to the lighter end of the range of Indian Ocean Mode Water in the model. The effect of eddies on surface WMT is decomposed into three terms: direct modulation of the density outcrops, then indirectly, by modifying the air–sea density flux, and the combined effect of the two, akin to a covariance. It is found that the first and third terms dominate, i.e., smoothing the outcrops alone has a significant effect, as does the combination of smoothing both outcrops and density flux distributions, but smoothing density flux fields alone has little effect. Results from the coarse-graining method are compared to an alternative approach of temporally averaging the data. Implications for climate model resolution are also discussed.