Large and continuing reductions in southern Australian winter rainfall are shown to be associated with major shifts in the Southern Hemisphere circulation since the mid-1970s. In particular, these changes have been linked to a reduction in winter storm formation with the growth rate of the leading storm track modes affecting southern Australia being more than 30% lower during the last three decades compared to the period between 1949 and 1968. These effects have become more pronounced with time. In this study, we focus on the changes in southern Australian winter rainfall and relate them to circulation changes that are directly associated with storm formation. We employ two useful diagnostics related to storm development which are (a) the strength of the wintertime subtropical 300hPa zonal wind and (b) the vertical shear in the atmospheric winds, commonly known as baroclinic instability, and is encapsulated in the Phillips (1954) criterion. The relationship between changes in the Phillips criterion and changes in rainfall during the twentieth century is discussed. We also examine the ability of C20C and CMIP3 climate models to simulate the observed changes. Finally, we consider projected changes and trends in rainfall and baroclinic instability in SRES scenarios using results from CMIP3 models.