The Yilan Basin belongs to a half graben fauhed basin of extension of regime. The oil shales are found in the Palaeogene Dalianhe Formation. The Dalianhe Formation is the main mining horizon where the oil shales lie on the top of coal beds. The oil shales form in the system of lake and wetland, mainly in transgressive system tract and highest system tract. The richest horizon of oil shale has been found in the highest system tract which increases the potential of oil shale in the Yilan Basin. A fault trending east-west controls the buried depth, distribution and ore-forming process of the oil shale.