The Rio Santiago in the Cordillera Negra of Peru is severely contaminated by acid mine drainage in its headwaters. In a strongly acid stream, at about 3800 m above sea level (masl), microterraces were found with terrace walls built up of dead moss, with encrustations and interstitial fine, creamy sediment. The stream water was turbid due to the presence of similar suspended sediment, which also occurred as a thin basal layer in inter-rim basins. The moss was identified as the rare bryophyte Anomobryum prostratum (Mull. Hal.) Besch. Chemical and mineralogical analyses show that green, living parts of the moss are gradually coated by Al/Fe (hydr)oxides, inducing their senescence and death. The necromass is covered by creamy crusts through precipitation of schwertmannite-type material from the stream water and simultaneous 'capture' of fine sediment. The latter consists of a mixture of precipitate and fine detrital primary minerals. These processes are held responsible for the formation of the microterraces, which regarding their composition and environment seem to be unique. Remarkable is the high As content of the creamy crusts and sediment, attributed to strong sorption of As, whereas its solute concentration is relatively low. This calls for more attention to suspended fine sediment in the assessment of environmental risks of stream water use. Lastly, the results raise serious doubts about the use of aquatic bryophytes as bioindicator for chemical pollution in acid mine drainage-polluted streams.