We have undertaken detailed observations of the formation of the ‘Laghetto’ cinder cone, a new cone that formed during a 2-week period of intense activity in Piano del Lago, on the upper slopes of Mount Etna in summer 2001. We describe the events leading to the formation of a small graben, the formation of pit craters on the base of the graben, the onset of phreatomagmatic activity, a transition to intense Strombolian activity, and a return to phreatomagmatic activity as the eruption came to an end. We discuss the reasons for these transitions, and describe the morphological development of the cone during these events. Arcuate cracks on the southern part of the cone were related to withdrawal of magma at the end of the eruption. Other slope instabilities that developed during the eruption include the formation of small radial grain flows on the outer flanks of the cone and the collapse into the crater of part of the crater rim. Some of the failure planes we observed were first identified using a FLIR TM 695 thermal infrared camera. This is the first time that infrared thermography has been used to detect instability of volcanic structures. Results obtained during this test case demonstrate that thermal cameras are a very useful tool for studies of volcanic instability.