Shallow-water carbonates from the Yingshan Formation are important target of hydrocarbon exploration in Tarim Basin. Detailed descriptions of outcrop, core, and thin sections, isotopic composition analysis, and trace element analysis were conducted. Seven lithofacies which consists of two facies belt groups were identified and used to interpret deposition environments of Yingshan Formation: (1) peritidal carbonate, with relatively lower δ13C values from −4.2% to −1.9%, mainly represented by intertidal to supratidal facies and restricted subtidal facies and (2) open-marine subtidal carbonate, with higher δ13C values (−1.5% to −0.3%), mainly consists of shoal facies and interbank sea facies. On the basis of the lithology sets, four types of meter-scale cycle model (types A–D) were grouped into peritidal sequences and subtidal sequences. On the basis of vertical lithofacies, cycle stacking patterns, and accommodation variations in Fischer plots, two third-order depositional sequences (SQ1–SQ2) were recognized. The sequence boundary between SQ1 and SQ2 is not only a surface of a positive shift of δ13C values, but also the transitional zone of cycle stacking patterns. The sequences can be further divided into four fourth-order sequence sets: Sq1–Sq4. The lower sequences (Sq1–Sq2) are dominated by peritidal facies and characterized by a progressive decreasing in accommodation space probably indicates a longer-term fall in sea level. The upper sequences (Sq3–Sq4) are mainly dominated by subtidal facies and characterized by the accommodation space with a progressive increasement, likely indicates a rising sea level with a longer term. The facies-controlled reservoirs are mainly present in the Sq3, related to the sequence boundary between SQ1 and SQ2.