Abstract: The Yili Basin in Xinjiang is a composite basin composed of intracontinental rift basin-intermountain continental basin developed upon the pre-Sinian basement. The multistage epeirogenic movement resulted in the absence of the Sinian, Lower Palaeozoic, Devonian, Lower Triassic and Cretaceous strata. The source rocks in the basin are mostly arranged into the marine Carboniferous Aksak and Yeliemodun Formations, and continental Permian Xiaoshansayi and Tamuqisayi Formations. The centres of oil generation lie in the lake basins north of the Yishijilike-Tolesibaike mountain area. The reservoir rocks include the Permian, Triassic and Jurassic clastic rocks. Abundant oil shows found in the surficial beds and boreholes of the Mesozoic strata attested to the hydrocarbon potential of the basin in spite of multistage tectonism, complicated geological structures and westward migration of depocentres. The further exploration should be based on the improvement of basic research because of the coexistence of favourable and unfavourable factors.