Mesoscale variability and eddy shedding in the Tasman Sea, particularly of the East Australian Current (EAC), is studied through the analysis of remotely sensed observations and outputs from a global ocean model. Previous observations of the western boundary current separation from the coast showed strong variability at periods ranging between 90 and 140 days. We show from satellite altimetric observations that rapid northward migration of the separation point of the EAC follows the formation of large eddies at periods of ∼100 days. After an eddy separation event the normally southward flowing current swiftly assumes a more zonal configuration near the separation latitude, with a cyclonic circulation developing inshore. The formation of large separation eddies is preceded by the southward propagation of sea level anomalies along the east Australian continental slope. From 25°S, sea level anomalies grow as they travel south, eventually being pinched off in the form of large anticyclones at ∼32°S, in the current retroflection area. Energy conversion terms in a global ocean model and in altimetric data suggest both barotropic and baroclinic instability may account for the growth of these anomalies as they propagate south. East of the main EAC jet there is evidence that eddies may be feeding potential energy back to the mean flow.