Abstract: The observation of the cores and thin sections of rocks shows that the Paleogene Ganchaigou Formation in the Qaidam Ba-sin is composed of five lithofacies, i.e., laminated and non-laminated mudstone/shale, laminated and non-laminated lime mudstone/shale, silt limestone, laminated and non-laminated silty mudstone/shale, and argillaceous siltstone. The Ganchaigou Formation con-tains 0.2%~1.4% organic carbon(TOC). The organic matter is mature and dominated by typeⅡ-kerogen. The mineral composition is dominantly clastic quartz and clay minerals, together with such minor components as calcite, dolomite, feldspar and pyrite. Five types of reservoir space, namely primary pore, pore of hydrocarbon generation, secondary dissolution pore, pore by illitization and micro-fracture. The development of reservoir space is strongly controlled by the lithofacies, mineral composition, diagenesis, organic carbon content and organic matter maturity. The shale of Ganchaigou Formation is characterized by low organic carbon content. However, the organic matter is generally mature. Several types of reservoir space, high content of brittle minerals and illite clay mineral were found in the Ganchaigou shale. Therefore, the Paleogene Ganchaigou Formation in the Qaidam Basin is a favorable reservoir for shale gas exploration and may have an optimistic shale gas potential.