Paleogene sediments, especially the third member of the Dongying Formation (Ed 3 ) and the first and third members of the Shahejie Formation (Es 1 and Es 3 ), have been regarded as the most important source rocks in the Nanpu Sag. Organic and inorganic analyses, including Rock-Eval pyrolysis, gas chromatography-mass spectrometry, and element geochemistry, in 91 mudstone samples, were used to reconstruct the palaeoenvironmental conditions, such as palaeoclimate, palaeo-salinity and palaeo-redox conditions, and to recognize the origin of organic matter. The results show that Es 3 has a higher TOC content than Es 1 and Ed 3 . Hydrocarbon genetic potential (S 1 + S 2 ) of the samples indicate fair to good hydrocarbon potential. The kerogen type of Ed 3 and Es 1 source rocks are Type II 1 –II 2 , while Es 3 source rocks are dominated by Type II 2 –III kerogens. Biomarkers and inorganic geochemical indicatives of source rocks, such as Pr/Ph, V/(V + Ni) and Cu/Zn, indicate a lacustrine environment with fresh to brackish water under suboxic to anoxic conditions during deposition. Ed 3 source rocks are characterized by low G/C 30 H (gamacerane/C 30 hopane) (<0.1), TT/C 30 H (tricyclic terpane/C 30 hopane) and S/H (serane/hopane), high Pr/Ph (pristane/phytane) and C 24 TeT/C 23 TT (C 24 tetracyclic terpane/C 23 tricyclic terpane), indicating mixed input of both algae and terrestrial higher plants, dominated by terrestrial higher plants. Es 1 source rocks display medium G/C 30 H, TT/C 30 H, S/H, Pr/Ph and C 24 TeT/C 23 TT, indicative of a mixed input of both algae and terrestrial higher plants. Es 3 source rocks are characterized by high G/C 30 H (>0.1), TT/C 30 H and S/H, low Pr/Ph and C 24 TeT/C 23 TT, typical of a mixed input of algae and terrestrial higher plants, with algal dominance. Ed 3 , Es 1 and Es 3 source rocks were mostly deposited in semi-arid to humid-warm climate conditions, with an average temperature higher than 15°C. This study suggests that suitable temperatures, a fresh to brackish lacustrine environment and suboxic to anoxic conditions could result in a high organic matter concentration and preservation, thus providing prerequisites for the formation of high-quality source rocks. Supplementary material : Tables S1–S3 are available at https://doi.org/10.6084/m9.figshare.c.5227684