The low‐permeability oil‐bearing tuffaceous sandstones of the second member of the lower Jurassic Sangonghe Formation (J1s2) in the Well Pen‐1 west sag of the central Junggar Basin occur in a deep burial setting (> 4000 m). They contain abundant oil and gas shows and hold promising exploration prospects. However, the reservoir heterogeneity is strong due to complex lithofacies and diagenesis, leading to significant productivity differences between adjacent wells. Therefore, identifying the lithofacies and diagenesis of the J1s2 sandstones and elucidating their influence on the evolution of relatively high‐quality reservoirs is of utmost importance for oil and gas exploration and development in this area. Samples from the Well Pen‐1 west sag, representing the J1s2 sandstones, were investigated utilising core and thin section observations, scanning electron microscopy, X‐ray diffraction, fluid inclusions and carbon and oxygen isotope analyses. The J1s2 sandstones are mainly medium‐ to fine‐grained and moderate‐ to‐well‐sorted feldspathic litharenites and litharenites. The tuffaceous contents range from 2.6% to 25% and the authigenic clay contents, produced by diagenesis, range from 0.6% to 12%, although carbonate cements are not abundant (av. 3.1%). Four sandstone lithofacies have been identified based on mineral compositions, leading to variations in diagenetic evolution and reservoir quality. Early diagenetic events included compaction, alteration of tuffaceous matrix and feldspar, and development of smectite, chlorite, kaolinite and early calcite. Mesogenic alteration included feldspar and tuffaceous matrix dissolution, alteration of kaolinite, chlorite and illite, and precipitation of quartz, anhydrite, late calcite and ferrocalcite. The alteration of the tuffaceous matrix resulted in a complex pore‐throat structure in the J1s2 sandstones. The pebbly sandstone and conglomerate (SC) and fine‐grained sandstone (Sm) lithofacies are generally characterised by high compaction resistance, low tuffaceous matrix and cement contents, and abundant secondary dissolution pores, and they exhibit better reservoir quality and great potential for oil and gas enrichment.