Abstract：The Pinghu Formation is one of the major source rocks for oil and gas reservoirs in Xihu depression. The types of source rocks are mudstone, carbonaceous mudstone and coal, the organic matter type isⅡ-Ⅲ, the organic matter is abundant, and on the whole, the rocks are medium-good source rocks. The Pinghu Formation of Xihu basin is mainly developed in bay, delta influenced by tide, braided river delta and tidal flat, with source rocks deposited in the bay and tidal flat environment. During the depositional stage of Pinghu Formation, the sedimentary water was brackish-saline, the characteristics were oxidative in peat swamp developed in delta and tidal flat, and low reducing in bay. There were four factors which dominated the development of source rocks in Pinghu Formation： paleo-structure, which determined the thickness and location of sources rocks; sea level, which controlled the distributive characteristics of source rocks within the strata; paleo-climate, which provided approved material background for the development of source rocks; sedimentary environment, which governed the abundance, types and conservational conditions of source rocks. On the basis of the study of the controlling factors and sedimentary environment responsible for developing source rocks of Pinghu Formation, the authors have established a sedimentary model for developing source rocks in Pinghu Formation.