Waterfalls form where the river bed has a layer of harder rock overlying the softer rocks. As water falls the softer rock is eroded much more quickly than the harder rock; therefore undercutting the harder rock. The hard, overrhanging rock eventurally collapses. The collapsed rocks fall into the plunge pool causing more erosion of the soft rocks (through attrition and abraision) and a deeper plunge pool.
This goes on continuously causing the waterfall to retreat upstream.
The waterfall leaves a steap sided gorge as it retreats. Waterfalls may also be caused as a result of Glacial Erosion, A Fall in Sea Level and Earth Movement.