The material, known as oolitic limestone, is a popular building material around the world and is almost completely made of millimetre-sized spheres of carbonate called ooids.
Researchers from the Australian National University (ANU) found that ooids were made of concentric layers of mineralised microbes, debunking the popular 'snowball theory' that ooids were formed by grains rolling on the seafloor and accumulating layers of sediment.
"We have proposed a radically different explanation for the origin of ooids that explains their definitive features," said Bob Burne from ANU.
Different types of oolitic limestones have formed in all geological periods and have been found around the world, including in the US, the UK, Germany, the Bahamas, China and at Shark Bay in Western Australia.
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Burne said humans had known about and used oolitic limestone since ancient times.
"Many oolitic limestones form excellent building stones, because they are strong and lightweight.
"Mississippian oolite found in Indiana in the US has been used to build parts of the Pentagon in Virginia and parts of the Empire State Building in New York City.
"Our mathematical model explains the concentric accumulation of layers, and predicts a limiting size of ooids," said Murray T Batchelor from ANU.
"We considered the problem theoretically using an approach inspired by a mathematical model developed in 1972 for the growth of some brain tumours," said Batchelor.
The findings could help better understand the effects of past climate change.