The Fukang Sag hosts prolific Jurassic lacustrine source rocks, which include the Badaowan (J1b), Sangonghe (J1s), and Xishanyao (J2x) formations in the Junggar Basin. Depositional conditions were reconstructed based on various major and trace element proxies for the East Fukang Sag during the Jurassic. The palaeowater depth in the sag was shallow and did not display a great change during the deposition of the J1b, J1s, and J2x formations, as indicated by lithological composition and the widespread ripple cross‐beddings. The oxic to dysoxic and fresh‐water conditions were postulated to prevail in the sag during the deposition of these source rocks, as revealed by concentrations of salinity‐ and redox‐sensitive trace elements [i.e., V/Cr, Ni/Co, (Cu+Mo)/Zn, Sr/Ba ratios, and Sr, Mn, Ga contents] derived from the source rocks. The seasonal salinity stratification superposed on preexisting thermal stratification led to the appearance of the chemocline in the J1b Formation. The palaeoclimate regime was humid and warm during the depositions of the J1b and the upper J1s formations, and warmer and drier during the deposition of the lower J1s Formation, but the palaeoclimate gradually became semi‐arid and semi‐cold during the deposition of the upper J2x Formation, as implied by various proxies (i.e., Sr/Cu ratio, C‐value, and CIA value). Despite the fact that the oxic to dysoxic conditions were not conducive for organic matter (OM) preservation, the significantly moderate‐high palaeoproductivity (suggested by, i.e., Ba content and Ba/Al ratio), which was promoted by a suitable supply of nutrient from terrestrial inputs in the shallow water was the controlling factorfor the OM accumulation on the margin of the sag, but the low OM concentration was controlled by the palaeoredox conditions in the central area, which was far from the OM input source [suggested by the relationship between total organic carbon content and stable carbon isotope composition of OM (δ13Corg)]. The analyses based on Rock‐Eval pyrolysis, maceral composition, C/N ratio of isolated kerogen, and δ13Corg value showing the OM was derived from terrestrial higher plants with C3 plants (type III kerogen) are consistent with the palaeoenvironmental analysis.