Abstract The organic-rich upper Lower Jurassic Da'anzhai Member (Ziliujing Formation) of the Sichuan Basin, China is the first stratigraphically well-constrained lacustrine succession associated with the Toarcian Oceanic Anoxic Event (T-OAE; c. 183 Ma). The expansion of the palaeo-Sichuan mega-lake, probably one of the most extensive freshwater systems to have existed on the planet, is marked by large-scale lacustrine organic productivity and carbon burial during the T-OAE, possibly owing to intensified hydrological cycling and nutrient supply. New molecular biomarker and organic petrographical analyses, combined with bulk organic and inorganic geochemical and palynological data, are presented here, providing insight into aquatic productivity, land-plant biodiversity and terrestrial ecosystem evolution in continental interiors during the T-OAE. We show that lacustrine algal growth during the T-OAE accounted for a significant organic-matter flux to the lakebed in the palaeo-Sichuan mega-lake. Lacustrine water-column stratification during the T-OAE facilitated the formation of dysoxic–anoxic conditions at the lake bottom, favouring organic-matter preservation and carbon sequestration into organic-rich black shales in the Sichuan Basin. We attribute the palaeo-Sichuan mega-lake expansion to enhanced hydrological cycling in a more vigorous monsoonal climate in the hinterland during the T-OAE greenhouse.