Given the high lipid content and potentially huge biomass, the explosive occurrence Botryococcus is regarded as a significant marker of high-quality oil source rocks in petroliferous basins. However, they are rarely discovered in saline lacustrine source rocks, and the formation mechanism of these alga-rich shales remains uncertain. In this study, abundant Botryococcus fossils were firstly found, accounting for an average of 43.5% of the total organic debris from the upper Xiaganchaigou Formation in the Yingxiongling and Zhahaquan hydrocarbon-rich sags of the western Qaidam Basin. The Botryococcus-dominated palynofacies assemblages were usually interpreted as derived from a distal oxic shelf environment. These Botryococcus-dominated sediments were characterized by a perfect laminated texture and composed of detrital, carbonate, and clay laminae. The Botryococcus fossils exclusively occur in the detrital laminae with large-grained quartz and feldspar and low carbonate content, possibly reflecting increased river input under relatively heavy precipitation. The cyclothymic deposition between these Botryococcus-rich detrital laminae and other laminae probably indicates that sufficient terrestrial nutrient inputs and lake salinity decreases driven by periodic heavy precipitation result in Botryococcus bloom under fresh or brackish water environments. These Botryococcus-dominated shales in the western Qaidam Basin usually have a high oil-prone hydrocarbon generation potential, as evidenced by their organic geochemistry parameters. These sediments have biomarker features extremely similar to crude oil with a high relative abundance of C20–C24 tricyclic terpanes, phytane, C27ααR sterane, and a unimodal distribution of n-alkanes with the maximum at n-C18. Therefore, these Botryococcus-dominated shales are possibly important oil sources of these prolific oil sags. Additionally, these high-quality source rock sequences can reach a few tens of meters in thickness and evidently have significance for future shale oil resources.