Carbon isotope ratios of bulk organic matter in sedimentary rocks (δ13CDOM) are a potential source of paleoenvironmental information in terrestrial stratigraphic sequences. However, insufficient understanding of the range of depositional and post‐depositional controls on δ13CDOM values makes interpretations of these data difficult. Here we evaluate the effects of organic matter (OM) provenance and preservation on δ13CDOM using records spanning the Paleocene Eocene Thermal Maximum (PETM) in the Bighorn Basin (Wyoming, USA) as a case study. We sampled sedimentary rocks spanning the PETM in two well‐studied locations—Polecat Bench (PB) and Highway 16 (HW16)—in the Bighorn Basin. Independent carbon isotope records from biomarkers and pedogenic carbonates at these sites suggest that local shifts in plant and soil δ13C values associated with the PETM CIE were broadly similar and were characterized by an abrupt ∼5‰ decrease followed by a plateau and a eventual return to pre‐PETM δ13C values. The δ13CDOM records from both sites differ significantly from these reference curves in both amplitude of change and in preserving high‐frequency isotopic fluctuations and large isotopic anomalies superimposed on the general pattern of isotopic change through the CIE. For each location, we separated organo‐mineral fractions (MOM), concentrated macerals from 20 stratigraphic levels and analyzed the carbon isotope ratio (δ13C) of each fraction. At both sites the δ13C of the fine and coarse MOM differ significantly from each other and from δ13CDOM. Concentration‐weighted mixing of these isotopically distinct OM fractions explains high resolution δ13CDOM fluctuations but does not explain the large isotopic anomalies observed at both sites. At HW16, we identified two thermally and isotopically distinct populations of macerals interpreted as being indigenous and recycled OM. At this site, one over total organic carbon (1/TOC) values correlate with δ13CDOM for pre‐PETM and PETM strata and both relationships converge toward the δ13C of recycled OM for low TOC. At PB, macerals display homogeneous thermal maturity, but the proportion of isotopically distinct vitrinite and liptinite varies between facies. Relationships between 1/TOC and δ13CDOM are also present within specific stratigraphic intervals at PB, but values do not converge on a single isotopic value across the sampled interval. These observations are consistent with variable mixing of OM fractions having different provenance—mixing of exotic recycled OM at HW16 and locally reworked OM at PB with indigenous “fresh” OM at both sites—and explain the large anomalies observed in the δ13CDOM records at both sites. Our findings raise questions about the assumption that OM in ancient sediments is indigenous and dominantly records δ13C variations of local plants.