Abstract Extreme rainfall events in Taiwan pose significant forecasting challenges due to complex multiscale interactions. Although orographic lifting is known to trigger convection, its role in modifying atmospheric stability, specifically through the formation of moist absolutely unstable layers (MAULs), remains underexplored. This study presents the first investigation demonstrating that terrain can induce MAULs and enhance extreme rainfall in mountainous terrain in Taiwan, a mechanism not previously documented. Convection‐permitting simulations show that terrain‐driven moisture convergence and layer lifting promote deeper and more persistent MAULs. Removing the terrain substantially limits the MAUL development, associated with weaker rainfall. Furthermore, the MAUL volume rapidly increases prior to the most intense rainfall, suggesting its potentital as an indicator of extreme precipitation. These findings highlight the role of terrain in modulating both the thermodynamic environment and extreme rainfall, underscoring the importance of accurately representing orographic effects in numerical weather prediction.

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