The Meihe Basin is an important Paleogene coal-bearing basin located in the Dunhua-Mishan Fault Zone, northeastern China. Based on a comprehensive study of well logs, seismic profiles, cores and rock geochemical properties, the coal distribution, paleoenvironment evolution within a sequence stratigraphic framework and the accumulation model to explain how coal seams developed in small fault basin were discussed in detail. Three-third-order sequences were identified in the Paleogene Meihe Formation of Meihe Basin and the two coal-bearing sequences are the Lower Coal-bearing Member of Sequence I and the Upper Coal-bearing Member of Sequence III. All three types of system tracts are developed in both sequences, i.e., the lowstand systems tract (LST), the transgressive systems tract (TST), and the highstand systems tract (HST). In LST of Sequence I, fan delta plain marsh is the main coal accumulating environment where coal seams are thin, discontinuous and therefore uneconomic for mining, and it is the same with all coal seams developed in Sequence III. While in TST and HST of Sequence I, lake swamp is the main sedimentary environment where coal seams are thick, continuous, widely distributed, and thus economically attractive for mining. In the study area, the nice thick economical coal seams are usually developed in an ideal stable depositional environment where organic matter accommodation space grows at a balanced rate with peat, in other words, free of sediment input or channel migration. The key findings of this study could provide guidance for the exploration of coal seams in the Meihe Basin and other similar basins.