The Bay of Bengal is a hotspot for intense marine heatwaves (MHWs) with adverse impacts on local coral ecosystems, yet extreme MHWs in this region remain largely unexplored. In June–September 2020, the most extreme and longest-lasting MHW (MHW-20) on record occurred in the northeastern Bay of Bengal (NEB), which persisted for 94 days with a cumulative intensity of 104.1°C·days. The anomalous warming developed locally in central NEB and gradually dissipated westward during the decay period. Here, we examine the local and remote physical processes during the evolution of the MHW-20, and perform a heat budget analysis for the mixed layer. We find that the onset of the extreme event was primarily driven by increased shortwave radiation from the clear-sky condition during the Monsoon Intra-Seasonal Oscillations (MISO) break phase and surface convergence from an anticyclonic oceanic gyre. Oceanic downwelling Rossby waves associated with the extreme positive 2019 Indian Ocean Dipole event also played an important role in the generation and persistence of the MHW-20. The decay of the MHW-20 was mainly controlled by enhanced latent heat release due to intensified wind during the active phase of MISO and weakened heat advection due to reduced surface convergence linked to the oceanic gyre and planetary waves westward mitigation out of the NEB region. The findings may improve our knowledge of physical drivers of extreme MHWs that have important implications for the marine environment and life.