The Pleistocene sediment infill of elongated glacial incisions of the southern North Sea (SNS) is often referred to as tunnel valleys (TVs). The depositional environment is not yet fully understood and the present study addresses this challenge from the perspective of clay-mineral transformation (illite to illite-smectite) reported from the largest Elsterian TV of the SNS. Material acquired from the K14-12 borehole in the Dutch offshore was analyzed by X-ray diffraction (XRD), electron microscopy, electron microprobe, and laser particle-size analysis. Illite and illite-smectite (I-S) appeared as dominant clays along with minor amounts of kaolinite, kaolinite-smectite, and chlorite. The largest amount of I-S is recognized in the main TV portion, while in pre-glacial and uppermost deposits, I-S is less abundant. The XRD peak fitting and deconvolution suggest that I-S consists of several intermediates – ordered (well crystallized illite + R3 I-S) and disordered (R0 I-S + R0 I-SS). Given the average particle sizes (>2 μm) and Kübler index values (0.415–0.341°Δ2θ), illite as well as chlorite and kaolinite were interpreted as detrital. On the basis of the distinctive distribution, grain sizes, and compositional variations of I-S, formation by means of early diagenetic in situ smectitization of illite under a cold climate is proposed. The process operated via a series of mixed-layer intermediates derived from an illite component being converted progressively to low-charged smectite. The reaction is marked by a significant net loss of K and Al with replacement by Si in a tetrahedral coordination. Layer-charge imbalance is accommodated by Fe(III) and Mg entering an octahedral sheet, whereas Ca partly fills the interlayer sites. Smectitization rates were controlled by illite grain sizes. The results of the present study support strongly the existence of an ice-marginal freshwater depositional environment at the glacial maximum in the SNS in which early diagenesis at low temperatures resulted in incomplete conversion of illite to smectite.