The purpose of this work was to study the depositional mechanisms and significance of the Longmaxi shale in the Sichuan Basin in southern China. Seven lithofacies were identified based on the detailed observation of outcrops and cores using petrographic and scanning electron microscope examination of thin sections and other data analyses: (1) laminated calcareous mudstone, (2) laminated carbonaceous mudstone, (3) laminated silty mudstone, (4) laminated claystone, (5) laminated siliceous shale, (6) siltstone, and (7) massive mudstone. The laminated mudstone and laminated claystone originated from suspension deposition, and siliceous shale is associated with ocean upwelling, whereas massive mudstone and siltstone were primarily deposited by turbidity currents. The depositional mechanisms have a great effect on the source rock and reservoir properties. Suspension deposition near oceanic upwelling zones can provide favorable conditions for the production and preservation of organic matter and are thus conducive to the formation of high-quality source rocks (total organic carbon content up to 5.4%). The reservoir storage spaces are primarily interlaminated fractures and organic pores with good physical reservoir properties (high porosity, permeability, and brittle mineral content). Turbidity currents may carry a large quantity of oxygen to the seafloor, resulting in the oxidation of organic matter, which is unfavorable for its preservation. The lithofacies formed by turbidity currents have relatively low total organic carbon contents (average: <1%). Structural fractures and intergranular pores are the primary storage spaces that are present in the reservoir. In summary, organic-rich shale and siliceous shale that was deposited from suspension near upwelling zones are key exploration targets for shale oil and gas. The widely distributed, multilayer, tight sandstone is important in the exploration for tight oil. A better understanding of the deposition mechanism and its effect on oil reservoirs may assist in identification of favorable areas for exploration.