Abstract: Two sets of organic-rich shales are developed in the second member of Funing Formation (E₁f₂) in the Subei Basin, which are E₁f₂^{shale 1} and E₁f₂^{shale 2}. They are widely distributed, with rich shows and favorable shale oil conditions. Based on core and thin section observations, and combined with systematic organic geochemistry, X-ray diffraction and trace element analyses, the characteristics and sedimentary environment of the organic-rich shales were studied. The characteristics of the E₁f₂^{shale 1} and E₁f₂^{shale 2} are totally different. The E₁f₂^{shale 1} mainly consists of dark gray blocky limestones and siliceous mudstones, with slight bedding, 2.21%-3.41% organic carbon content, and type I organic matter. The E₁f₂^{shale 2} mainly consists of dark oil shales and dolomitic mudstones, calcite mudstones, muddy dolomites and muddy limestones, with laminar bedding, 2.02%-2.99% organic carbon content, and type I organic matter. The sedimentary palaeo climate of E₁f₂ has experienced semi-arid, reducing, brackish water, to dry, strongly reducing, salt lake, and to warm humid, oxic, freshwater in the Subei Basin. The organic-rich shales were formed in the transition formations near the maximum flooding surface, between strongly reducing, dry and hot, saltwater environments and oxic, humid, normal water environment. The E₁f₂^{shale 2} was formed in a strongly reducing, dry and hot, salt lake environment, while the E₁f₂^{shale 1} was deposited in a strongly reducing, damp to semi-arid and brackish water environment. Sedimentary environment evolution resulted in the differences of lithology, electrical properties, and quality of hydrocarbon source rocks, occurring in the muddy shale interlayer and internal organic-rich shale.