In the hyperarid Namib Desert, the sand termitePsammotermes allocerusSilvestri, 1908 (Isoptera: Rhinotermitidae) establishes colonies that create conspicuous, barren patches known as ‘fairy circles' on permeable, sandy soils. The central bare areas of fairy circles serve the key function of storing moisture received from sparse rainfall. The sandy soil texture allows rapid infiltration and percolation of precipitation, while localized herbivory by the termites creates the bare patch, thereby reducing the rapid loss of soil moisture by the uptake and transpiration of water by plants. The resulting storage of rain water even during prolonged periods of drought enables perennial life in hyperarid desert environments and forms a globally unique example of ecosystem engineering by social insects. During the past decade, most publications primarily debated the origin of fairy circles. Here, we contribute to the special issue with a focus on the functional and evolutionary dimension of the structure of thePsammotermescolony with two differing nest types and two spatially separated key resources, as a successful adaptation to extreme desert environment. The paper is primarily a review and a synthesis of previous work, with the inclusion of new, relevant findings.This article is part of the theme issue ‘The evolutionary ecology of nests: a cross-taxon approach’.