Shale oil has been found in the Paleogene lacustrine source rocks in the second (Eh(3)(2)) and third beds (Eh(3)(3)) of the third member of the Hetaoyuan Formation from the Biyang Depression of the Nanxiang Basin, eastern China, but the formation environments of the organic-rich shales are still unclear, which restricts the shale oil exploration. Here, this paper discusses the paleoenvironment and its control on the organic-rich shale formation. Our study suggests that shales from the Eh(3)(2) and Eh(3)(3) beds display some heterogeneities in total organic carbon (TOC) contents and oil potential as a result of their different paleoenvironments. During Eh(3)(3) deposition, the paleoproductivity was moderate to high, which was diluted by moderate to high terrigenous detrital matter (TDM) input. During Eh(3)(2) deposition, the TDM and terrigenous organic matter (TOM) inputs increased. The paleoproductivity was moderate, which was greatly diluted by the high TDM content. The redox conditions were anoxic during the two source rock intervals. Paleoproductivity is the main controlling factor of source rock formation during Eh(3)(2) and Eh(3)(3) depositions, which has a strong positive correlation with the burial of organic carbon. However, anoxia did not promote deposition of the richest source rocks. During Eh(3)(3) deposition, shales with high contents of TOC values and better oil potential could be formed in this environment on account of the moderate to high paleoproductivity. In contrast, during Eh(3)(2) deposition, high TOM input did not obviously improve the burial of organic carbon bin high TDM input significantly diluted the paleoproductivity. The bottom water became semi-saline to hypersaline, but it did not enhance the anoxic environment. Shales with medium TOC values and oil potential could be formed in this environment as a result of moderate paleoproductivity.