To contribute to the understanding of magma evolution in arc settings we investigate the oldest volcanic unit (Kanafià Synthem) of Nisyros volcano, located in the eastern Aegean Sea (Greece). The unit consists of porphyritic pillow lavas of basaltic andesite composition with trace element signatures that are characteristic of island-arc magmas. Two lava types are distinguished on the basis of geochemistry and the presence or absence of xenoliths, with the xenolith-bearing lavas having distinctly elevated Sr, MREE/HREE and MgO/Fe2O3 compared to the xenolith-free lavas. Xenoliths include relatively rare quartzo-feldspathic fragments that represent continental-type material, and coarse clinopyroxenite xenoliths that consist largely of aluminous and calcic clinopyroxene, and accessory aluminous spinel. Anorthite–diopside reaction selvages preserved around the clinopyroxenite xenoliths demonstrate disequilibriumbetween the xenoliths and the host magma. The xenolith clinopyroxene is distinctly enriched inmost lithophile trace elements compared to clinopyroxene phenocrysts in the host magmas. A notable exception is the Sr concentration, which is similar in both clinopyroxene types. The high Al and lowNa contents of the clinopyroxenites preclude a cumulate, deep metamorphic, or mantle origin for these xenoliths. Instead, their composition and mineralogy are diagnostic of skarn rocks formed by magma– carbonate interaction in the mid/upper crust. \n\nThe Kanafià lavas are interpreted to have undergone crystal fractionation, magma mixing/mingling and crustal assimilation while resident in the upper crust. We show that magma–carbonate reaction and associated skarn formation does not necessarily result in easily recognised modification of the melt composition, with the exception of increasing Sr contents. Carbonate assimilation also releases significant CO2, which will likely form a free vapour phase due to the low CO2 solubility of arc magmas. In the broader context, we stress that the effects of carbonate assimilation by arc magma may be more significant than currently recognised. Carbonate assimilation may modify key trace element ratios, such as Sr/Y, in arc magmas, and will liberate significant CO2 as vapour, which may influence eruption dynamics, estimates of subduction zone volatile budgets, and deep mantle CO2 recycling.