Chaotic terrains and the associated massive outflow channels are some of the most enigmatic features on Mars. Over hundreds of kilometres of rock units are fractured, tilted, and have subsided, forming chaotic terrain basins (Sharp, 1973). Large quantities of water emanated from these chaotic terrains in short periods of time in the Hesperian epoch (~3.7-3.3Ga), carving huge outflow channels, thousands of kilometres long, and more than 1km deep (Baker, 2001). However, the subsurface mechanism by which chaotic terrains form, and thereby suddenly produce very large quantities of water (>105km3) is poorly understood. Here we explore if these features can form by melting and collapse of buried water ice in a confined basin. 2D thermal modelling, using boundary conditions derived from the geology of Aram Chaos, demonstrates that a buried ice unit will start melting when 1-2km of overburden has accumulated. The thickness of the liquid subsurface layer depends primarily on the crustal heat flux, the thermal conductivity of the overburden sediments, and the surface temperature. A subsurface liquid water layer of 1 to 2km can be achieved under present day surface temperature conditions and a crustal heat flux of 15-30mWm-2. To a first order, the geological features of chaotic terrains and their outflow channels are consistent with a scenario in which a subsurface lake forms by melting of buried water ice, followed by collapse and rapid outflow of water. If correct, this hypothesis suggests that subsurface lakes on Mars may have existed for extensive (>100Ma) periods of time. Such subsurface lakes would be of major interest for astrobiology. © 2010 Elsevier B.V.