The Taihu Plain of the Lower Yangtze valley, China was a centre of rice agriculture during the Neolithic period. Reasons for the rapid development of rice cultivation during this period, however, have not been fully understood for this coastal lowland, which is highly sensitive to sea-level change. To improve understanding of the geomorphological and hydrological context for evolution of prehistoric rice agriculture, two sediment cores (DTX4 and DTX10) in the East Tiaoxi River Plain, south Taihu Plain, were collected, and analysed for radiocarbon dating, diatoms, organic carbon and nitrogen stable isotopes (δ13C and δ15N), grain size and lithology. These multiproxy analyses revealed that prior to ca. 7500 cal. yr BP, the East Tiaoxi River Plain was a rapidly aggrading high-salinity estuary (the Palaeo-Taihu Estuary). After ca. 7500 cal. yr BP, low salinity conditions prevailed as a result of strong Yangtze freshwater discharge. Subsequently, seawater penetration occurred and saltmarsh developed between ca. 7000 and 6500 cal. yr BP due to accelerated relative sea-level rise. This transgression event influenced a large area of the Taihu Plain during the Holocene, as shown by multiple sediment records from previous studies. Persistent freshwater marsh (or subaerial land) formed due to dramatic shrinkage/closure of the Palaeo-Taihu Estuary after ca. 5600 cal. yr BP when sea level was relatively stable. We speculate that geomorphological and hydrological changes of the East Tiaoxi River Plain played an important role in agricultural development across the Taihu Plain during the Neolithic period. The closure of the Palaeo-Taihu Estuary and the formation of stable freshwater marsh (or subaerial land) after ca. 5600 cal. yr BP were critical preconditions encouraging the rapid rise of rice productivity in the Liangzhu period (5500–4500 cal. yr BP). This development changed the landscape and river systems, and thus provided adequate freshwater supply to the Taihu Plain.