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Pfunds is located in the upper Inn Valley, where the Swiss Engadin meets Austrian Tyrol. The village nestles against the Inn, which here, as a wide, alpine river, shapes the valley floor. The surrounding mountains rise steeply and form a deeply incised V-valley, which strongly limits the horizon.

The village's development crowds between the river and the mountain flanks, causing the historic building fabric to often nestle directly against the shoreline. The river itself is a constantly present element that structures the space and strongly influences the townscapes of Pfunds. The narrowness of the valley creates few open spaces, which brings the architectural elements to the forefront.