The Middle Terrace is the finest jewel of Shalamar Garden's water system. For most people, entry into the lower terrace was the limit of their experience of Shalamar Garden, except on special ceremonial occasions. On those occasions, the visitor moved south along the water axis toward the wall of the second terrace. On top of the wall stood two exquisite marble pavilions, with a beautiful three-sided marble waterfall (chadar) at their base. Behind the water were hundreds of carved marble niches, called chini khanas. Niches of this sort were a distinctive feature of Mughal garden design from Agra to Kashmir, but their aesthetic qualities were most fully realized at Shalamar. Behind the two marble pavilions lay the largest ornamental tank ever built by a Mughal king in Lahore. The tank is in effect a large elevated reservoir with the potential energy to drive all of the waterworks below. One hundred and fifty-two fountains played in the main tank, at the southern end of which there is a high wall with a marble pavilion on top. On formal occasions, the king might have appeared before his nobles from this pavilion. When the king descended to the lower terraces, his ladies would remain in the upper pavilion, discreetly watching the events below.

No one knows exactly how the complex system of fountains at Shalamar was laid out. And although detailed studies have been undertaken, even today the complex hydraulic system of the middle terrace is not fully understood.