This article discusses the paleoenvironment and its control on Oligocene source rock formation in the deep water area of the northern South China Sea (SCS), including the deep water area of the Qiongdongnan (QDN) Basin and Baiyun Sag of the Pearl River Mouth (PRM) Basin. During E(3)y and E(3)l deposition, the terrigenous detrital matter (TDM) inputs were moderate to high and moderate, respectively, as indicated by TiO2 values and SiO2/Al2O3 ratios, which accordingly diluted primary production, causing low to moderate and moderate productivity, respectively. The bottom water was oxic because of abundant TDM input, which was unbeneficial for organic matter accumulation. In this environment, algal organic matter could not be preserved. Terrigenous organic matter (TOM) is the main controlling factor of Oligocene source rock formation in the deep-water area of the QDN basin. Source rocks with high organic matter content in the Yacheng Formation could not be formed, although there was moderate to high TOM input in this period, as suggested by relatively high oleanane/alpha beta C(30)hopane (OL/C30H) ratios and low alpha alpha alpha 20RC(27)/alpha alpha alpha 20RC(29) sterane (C-27/C-29) ratios. During E(3)l deposition, the influx of TOM was reduced, making conditions unsuitable for high organic carbon source rock formation. In contrast to the QDN basin, there was an influx of fresh water (the ancient Pearl River) into the PRM basin, which significantly influenced the source rock formation in the Baiyun Sag. Thus, TOM and TDM inputs were abundant during E(3)z deposition. Increased content of TDM not only reduced primary production, causing moderate and low productivity during E(3)e and E(3)z deposition, respectively, but also contributed to oxic conditions. Although most algal organic matter could not be preserved in the oxygenated water column, part of the algal organic matter could have accumulated due to the high sedimentary rate suggested by high content of TDM, which supported Oligocene source rock formation in the Baiyun Sag. TOM mainly controlled the development of source rocks in the Enping Formation, and source rocks with relatively high organic matter abundance could be formed. However, multiple factors (besides the main factors TOM and TDM, paleoproductivity and redox conditions were also included) influenced the source rocks in the Zhuhai Formation. Organic carbon-rich source rocks could have developed in this period.