Abstract: Xishanyao Formation is the main coal-bearing stratum in Yili basin. Based on the analyses of data about drilling, loggings, outcrops and palaeophytes, this paper studied the sequence stratigraphy of Xishanyao Formation in Yili basin. Two sequences, SQ₁ and SQ₂, were identified with the classic sequence stratigraphy method, and five system tracts were subdivided according to the superposition style of strata and sedimentation cycle. The characteristics of sedimentary evolution of Xishanyao Formation were also defined through analyzing the sedimentary environments. In sequence SQ₁, a river-dominated delta was developed; a stable peat swamp was formed in the lake edge and flood plain area and stable thick coal seams were also formed after a long-time and wide-range intense coal accumulation. In sequence SQ₂, owing to the tectonic transformation, the strong denudation and insufficient data, the coal accumulation and the sedimentary characteristics need to further study. The result provided the basis for further exploration of coal resources in Xishanyao Formation in Yili basin.