Three-dimensional numerical modelling of the marine and fluvial dynamics of the lower Murray River demonstrate that the mid-Holocene sea-level highstand generated an extensive central basin environment extending at least 140 kilometres upstream from the river mouth and occupying the entire one to three kilometre width of the Murray Gorge. This unusually extensive, extremely low-gradient backwater environment generated by the two metre sea-level highstand captured most, if not all, of the fine-grained sediment discharged from the 1.06 million square kilometre Murray-Darling catchment. This material was sequestered within a >60 kilometre long, >10 metre thick valley-wide deposit of finely laminated mud. This previously unrecognised sediment trap persisted from 8,518 to 5,067 cal yr BP preventing sediment delivery to the marine environment. Its identification requires that mid-Holocene climate reconstructions for southeastern Australia based on fluctuations in the delivery of fine-grained sediment to the ocean offshore the lower Murray River’s mouth must be re-evaluated.