Palisade fabric is a ubiquitous texture of silica sinter found in low temperature (<40 degrees C) regimes of hot spring environments, and it is formed when populations of filamentous microorganisms act as templates for silica polymerization. Although it is known that postdepositional processes such as biological degradation and dewatering can strongly affect preservation of these fabrics, the impact of extreme aridity has so far not been studied in detail. Here, we report a detailed analysis of recently silicified palisade fabrics from a geyser in El Tatio, Chile, tracing the progressive degradation of microorganisms within the silica matrix. This is complemented by heating experiments of natural sinter samples to assess the role of diagenesis. Sheathed cyanobacteria, identified as Leptolyngbya sp., were found to be incorporated into silica sinter by irregular cycles of wetting, evaporation, and mineral precipitation. Transmission electron microscopy analyses revealed that nanometer-sized silica particles are filling the pore space within individual cyanobacterial sheaths, giving rise to their structural rigidity to sustain a palisade fabric framework. Diagenesis experiments further show that the sheaths of the filaments are preferentially preserved relative to the trichomes, and that the amount of water present within the sinter is an important factor for overall preservation during burial. This study confirms that palisade fabrics are efficiently generated in a highly evaporative geothermal field, and that these biosignatures can be most effectively preserved under dry diagenetic conditions.