The structure, transport properties and regimes of flow exhibited in a rotating fluid annulus, subject to internal heating and sidewall cooling, are studied both in the laboratory and in numerical simulations. The performance of the numerical model is verified quantitatively to within a few per cent in several cases by direct comparison with measurements in the laboratory of temperature and horizontal velocity fields in the axisymmetric and regular wave regimes. The basic azimuthal mean flow produced by this distribution of heat sources and sinks leads to strips of potential vorticity in which the radial gradient of potential vorticity changes sign in both the vertical and horizontal directions. From diagnosis of the energy budget of numerical simulations, the principal instability of the flow is shown to be predominantly baroclinic in nature, though with a non-negligible contribution towards the maintenance of the non-axisymmetric flow components from the barotropic wave–zonal flow interaction. The structure of the regime diagram for the internally heated baroclinic waves is shown to have some aspects in common with conventional wall-heated annulus waves, but the former shows no evidence for time-dependence in the form of ‘amplitude vacillation’. Internally heated flows instead evidently prefer to make transitions between wavenumbers in the regular regime via a form of vortex merging and/or splitting, indicating a mixed vortex/wave character to the non-axisymmetric flows in this system. The transition towards irregular flow occurs via a form of wavenumber vacillation, also involving vortex splitting and merging events. Baroclinic eddies are shown to develop from an initial axisymmetric flow via a mixed sinuous/varicose instability, leading to the formation of detached vortices of the same sign as the ambient axisymmetric potential vorticity at that level, in a manner which resembles recent simulations of atmospheric baroclinic frontal instability and varicose barotropic instabilities. Dye tracer experiments confirm the mixed wave/vortex character of the equilibrated instabilities, and exhibit chaotic advection in time-dependent flows.