Knowledge of in situ stress distribution is fundamental for coalbed methane production; however, it is poorly understood in the eastern Yunnan region, South China. In this study, the horizontal maximum (SHmax) and minimum (Shmin) principal stress and vertical stress (Sv) were systematically analyzed for the first time. The results indicated that the magnitudes of SHmax, Shmin, and Sv showed positive correlations with burial depth. In general, three types of in situ stress fields were determined: (1) SHmax > Sv > Shmin in shallow layers with burial depths less than approximately 600 m (∼1970 ft) below ground level (bgl), indicating a dominant strike-slip faulting stress regime; (2) in medium layers approximately 600–800 m (∼1970–2625 ft) bgl, the in situ stress state followed multiple relationships, suggesting that the in situ stress regime was transformed; and (3) Sv > SHmax >Shmin in deep layers with burial depths greater than approximately 800 m (∼2625 ft) bgl, indicating a dominant normal faulting stress regime. Coal permeabilities obtained from injection–falloff well tests showed that they were widely distributed, and no obvious relationships were found between coal permeability and effective in situ stress magnitude. In the study area, the development and orientation of previously generated natural fractures combined with the present-day in situ stress distribution controlled the permeability in coal reservoirs. Differential stress and presence of natural fractures significantly affected the geometry and pattern of hydraulic fractures. In addition, in the eastern Yunnan region, locations with relatively deep depths in vertical wells and approximately west–northwest/east–southeast-trending horizontal wells suffered high potential of borehole instability because of the high differential stress.