Abstract Transformation and formation rates of water masses in the Southern Ocean are estimated in a neutral-surface framework using air–sea fluxes of heat and freshwater together with in situ estimates of diapycnal mixing. The air–sea fluxes are taken from two different climatologies and a reanalysis dataset, while the diapycnal mixing is estimated from a mixing parameterization applied to five years of Argo float data. Air–sea fluxes lead to a large transformation directed toward lighter waters, typically from −45 to −63 Sv (1 Sv ≡ 106 m3 s−1) centered at γ = 27.2, while interior diapycnal mixing leads to two weaker peaks in transformation, directed toward denser waters, 8 Sv centered at γ = 27.8, and directed toward lighter waters, −16 Sv centered at γ = 28.3. Hence, air–sea fluxes and interior diapycnal mixing are important in transforming different water masses within the Southern Ocean. The transformation of dense to lighter waters by diapycnal mixing within the Southern Ocean is slightly larger, though comparable in magnitude, to the transformation of lighter to dense waters by air–sea fluxes in the North Atlantic. However, there are significant uncertainties in the authors' estimates with errors of at least ±5 W m−2 in air–sea fluxes, a factor 4 uncertainty in diapycnal mixing and limited coverage of air–sea fluxes in the high latitudes and Argo data in the Pacific. These water mass transformations partly relate to the circulation in density space: air–sea fluxes provide a general lightening along the core of the Antarctic Circumpolar Current and diapycnal diffusivity is enhanced at middepths along the current.