It is proposed here that fault gouge forms by rock pulverization within the tip region of a fast propagating earthquake due to the intensity of stress and rates of strain in this zone. To examine this mechanism, we calculate the deformation conditions of a dynamic shear fracture propagating close to the limiting Rayleigh wave velocity. The mechanical conditions close to the fracture tip are extreme: tensile stresses approach 5 GPa, volumetric strain rates exceed 10⁵ s⁻¹, and volumetric expansion alternates with volumetric contraction. It is expected that a localized zone a few millimeters wide will be pulverized under these conditions. This mechanism of dynamic gouge formation provides new insight to recent observations of the texture of gouge from the San Andreas fault-zone and from rupture zones in South African mines. Further, as such extreme conditions develop only during fast propagating earthquakes, presence or absence of pulverized gouge may serve as an indicator of earthquake propagation velocity.