Abstract: The Jiaolai Basin is a late Mesozoic fault basin located on the eastern side of Tanlu Fault Belt. It went through Laiyang, Qingshan and Wangshi stages in the late Cretaceous and can be subdivided into 11 sub-tectonic units. Based on a newly acquired seismic profile, this paper discussed the formation mechanism of the Haiyang Sag upon geometry characteristics, stratigraphic development and controlling faults. Our research indicates that the Haiyang Sag is a relatively independent sedimentary unit superimposed on the Sulu Orogenic Zone. It is an asymmetric fault basin, of which the east part is deeper and the west shallower. Its east boundary is a controlling fault probably as a part of the Siyang-Lianyungang Qianliyan-Kaicheng Fault. By comparing with the land part, we believe that the main part of the Haiyang Sag has extended into the South Yellow Sea where hydrocarbon source rocks are well developed and have never destroyed by igneous rocks. In this regard, it is considered that the Haiyang Sag has a better potential for petroleum exploration.