Virgin Valley is believed to have been formed over 16 million years due to a series of rhyolite volcanic flows. This created what is called the Canyon Rhyolite. It was a large basin enclosed by low hills. 

During the following 1 1/2 million years the area underwent a series of volcanic eruptions. The basin contained a succession of lakes and rich forests which were periodically buried by this volcanic activity. Canyon Rhyolite was slowly filled with layers of volcanic ash, lake sediments, and debris from pyroclastic flows. Pyroclastic flows produce a devastating effect on the land. Hot rock, ash and gasses are ejected in an explosive eruption which can travel across the land at great speed, wiping out and burying everything in it's path. 

Over time, a great lake formed in the area which deposited large amounts of diatomite, a form of silica. This silica would someday contribute to the formation of opal in the area. (Opal is cristobalite silica.)

The basin continued to fill with sediments and volcanic ash. About 10 million years ago, a basaltic flow covered the area, capping the basin and it's layers of ash and buried forests. 

Over time, hot ground water seeped through the layers of ash, picking up silica rich deposits and permeated the buried wood. The carbon molecules were slowly replaced by the hydrated silica creating perfect opalized replicas of the original material. Occasionally, the silica gel would form in pools which completely immersed the wood, preserving it perfectly.  Limb casts  formed as the gel filled the cavities left by previously buried wood, long decomposed. Under the right conditions, some of this opalized wood may develop into precious opal. This requires a stable, quiet environment which allows the cristobalite spheres to line up in formation. This unique alignment of the hydrated silica molecules creates reflection and refraction as white light passes through. This is the secret to the rainbow effect of the precious opal.

The entire area has been uplifted and eroded, exposing the opal deposits in certain clay beds of ancient volcanic ash. The precious opal bearing layers may be as much as 10-30 feet below the surface and range in thickness from 2-12 feet. Common opal is abundant throughout the successive layers of clay and ash, but only specific conditions produce the spectacular play of color which characterizes the precious opal.

Note the layers of volcanic ash which are clearly visible above
 the precious opal bearing layer being excavated.