An understanding of the permeability structure and transmissibility of fault zones can have profound implications for reservoir appraisal and development within petroleum systems. Previous investigations on the permeability structure of fault zones often focus on low-porosity host rocks rather than porous sedimentary rocks which more commonly form reservoirs. We present detailed mineralogical and geomechanical data from porous Cretaceous sandstones (Eumeralla Formation) collected at the Castle Cove Fault in the Otway Basin, south-east Australia. Ten orientated sample blocks were collected in the hanging wall at distances within 0.5–225 m from the fault plane. A progressive increase in porosity (~17–24%), permeability (0.04–2.92 mD), and pore throat size and connectivity was observed as the fault plane was approached. High-resolution thin section analyses revealed an increase in grain-scale fractures and deformation of authigenic clays in sandstones adjacent to the Castle Cove Fault plane. The improvement of the permeability structure of the sandstones is attributed to the formation of grain-scale fractures and the change in clay morphology as a result of faulting. This study demonstrates the importance of detailed mineralogical and geomechanical analyses when attempting to understand the reservoir properties of high porosity, low permeability, and clay-rich sandstones.