Paleogene sediments, especially the third member of the Dongying Formation (Ed3) and the first and third members of the Shahejie Formation (Es1 and Es3), have been regarded as the most important source rocks in the Nanpu Sag. Organic and inorganic analyses, including Rock-Eval pyrolysis, gas chromatography-mass spectrometry, and element geochemistry, in 91 mudstone samples were used to reconstruct the paleoenvironmental conditions, such as paleoclimate, paleo-salinity, and paleo-redox condition, and to recognize the origin of organic matter. The results show that Es3 has a higher TOC content than Es1 and Ed3. Hydrocarbon genetic potential (S1+S2) of the samples indicate fair to good hydrocarbon potential. The kerogen type of Ed3 and Es1 source rocks are Type II1-II2, while Es3 source rocks are dominated by Type II2-III kerogens. Biomarkers and inorganic geochemical indicatives of source rocks, such as Pr/Ph, V/(V+Ni) and Cu/Zn, indicate a lacustrine environment with fresh to brackish water under suboxic to anoxic conditions during deposition. Ed3 source rocks are characterized by low G/C30H (Gamacerane/C30Hopane) (<0.1), TT/C30H (Tricyclic Terpane/C30Hopane), and S/H(Serane/Hopane), high Pr/Ph(Pristane/Phytane), and C24TeT/C23TT(C24Tetracyclic Terpane//C23Tricyclic Terpane), indicating mixed input of both algae and terrestrial higher plants, dominated by terrestrial higher plants. Es1 source rocks display medium G/C30H, TT/C30H, S/H, Pr/Ph, and C24TeT/C23TT, indicative of a mixed input of both algae and terrestrial higher plants. Es3 source rocks are characterized by high G/C30H (>0.1), TT/C30H and S/H, low Pr/Ph and C24TeT/C23TT, typical of a mixed input of algae and terrestrial higher plants, with algalic dominance. Ed3, Es1, and Es3 source rocks were mostly deposited in semi-arid to humid-warm climate conditions, with an average temperature higher than 15℃. This study suggests that suitable temperatures, a fresh to brackish lacustrine environment, and suboxic to anoxic conditions could result in a high organic matter concentration and preservation, thus providing prerequisites for the formation of high-quality source rocks.