New neotectonic observations, along with a detailed aerial photograph analysis, allow a new interpretation of the recent tectonic behaviour of the outer forearc in northern Chile between 22.5°S and 24.5°S (Antofagasta region). Both the Coastal Cordillera and the Mejillones Peninsula are under E–W extension. Normal faults dipping east with an almost N–S orientation are predominant. Large-scale Neogene to Recent deformation is characterized by vertical uplift and subsidence related to normal faulting. Recent kinematics along the Atacama Fault System, including the Atacama Fault itself, are controlled by the regional extensional stress regime, and the predominant component of recent displacement along the Atacama Fault is vertical (normal). However, strike-slip components are also observed, but with moderate offsets, no larger than one to two tens of metres. The sense of shear, and the ratio between vertical and horizontal offsets, vary coherently with the fault azimuth, compatible with E–W extension. Oblique-slip faulting, with normal and left-lateral offsets of similar amplitude, is observed on the most northeasterly oriented segment of the Atacama Fault. This small left-lateral component of displacement and the strike-slip motion predicted by models of strain partitioning of the convergence along the Atacama Fault are in opposite senses. This occurs because the stress regime in the coastal region is not compressional but extensional. Very fresh recent ruptures are numerous, especially between 23°S and 24°S, and provide clear indications of the occurrence of moderate to large continental earthquakes during the Late Quaternary. As pointed out by several authors, indirect lines of evidence suggest active subduction erosion and underplating along the margin of northern Chile. We propose that part of the long-term extension is due to the broad-scale flexure of the outer forearc. This flexure may be controlled by offshore subsidence caused by subduction erosion near the trench, and by onshore uplift related to the underplating of eroded low-density material beneath the Coastal Cordillera. Neotectonic observations show that the state of stress in the outer forearc remains extensional (in a deviatoric sense) in the long term. However, it is proposed that the state of stress has a strong time-dependent component, which is intimately linked to the subduction seismic cycle. The Mw=8.0 Antofagasta earthquake of 1995 July 30 showed that large subduction earthquakes produce E–W extension in the coastal region. The overall E–W deviatoric extension in the outer forearc should be reduced by interseismic contraction in the period separating two subduction earthquakes. This reduction means that continental faults will remain locked and aseismic in the interseismic period of the subduction cycle, in agreement with microseismic observations, which indicate an absence of shallow crustal seismicity. We assume that the amount of extension produced by subduction earthquakes in the coastal area is larger than the cumulative interseismic contraction. This occurs because the displacement field generated by subduction earthquakes is concentrated in the outer forearc. The E–W extension should grow over prepeated subduction seismic cycles and lead to large continental earthquakes occurring within the overriding block, simultaneous with large subduction events. We show new surface ruptures associated with normal faulting along the Atacama Fault, which were most probably triggered by the 1995 Antofagasta subduction earthquake.