Smears are formed when faults cross-cut layered sequences. They have been observed within mudstone, shale, siltstone, carbonate, coal, and others. Gypsum smears were observed on a section of the East Qiulitage anticline in the Kuqa foreland basin when describing segmented reverse faults. Samples including gypsum and mudstone were collected to study why gypsum developed smears instead of mudstone. Based on mechanical tests, we investigated the formation mechanism of gypsum smears. The uniaxial compressive strength tested using a Schmidt hammer and the peak strength and cohesion tested using a triaxial test system at different confining pressures suggest that mudstone is stronger than gypsum; as the confining pressure increases, the strength contrast increases, and gypsum is more ductile than mudstone. Finally, we propose that the competence contrast between layers is the most fundamental factor controlling the formation of smears in the process of fault deformation. Once a smear is formed, the fault throw and source bed thickness control its continuity. The gypsum smear factor derived from the shale smear factor is used to evaluate the continuity of sheared gypsum smears, which are continuous where the gypsum smear factor is 3.5–4 or less. Faults seal when smears are continuous; determining the mechanism and continuity of smears is important in cross-fault fluid flow problems, especially in oil and gas transport situations.