The Gaoyou Sag in the south of the Subei Basin is a Paleogene, half-graben basin. Nearly E-W, ENE- and NNE-striking fault systems occur in the sag. Basement faults in the sag include ENE-striking thrusts formed by the Indosinian foreland deformation and NNE-striking sinistral faults developed during the Late Jurassic. The Paleogene sag was under a regional extensional stress field with N-S extension, leading to formation of the E-W normal faults. Its boundary faults include the generally ENE-striking Zhen-① Fault, Wu-① Fault and Liuling Fault. They formed by following the ENE- and NNE-striking basement faults, mostly along the ENE-striking basement faults. They are dextral normal faults, and three left-step, en echelon Zhen-② faults were therefore produced by the dextral normal faulting along the Zhen-① Fault. Many ENE-striking faults in the middle and west of the sag were developed due to influence of the ENE-striking, southern and northern border faults on local stress states and reactivity of some ENE-striking basement faults. NNE-striking faults in the sag are all derived from reactivity of the basement faults. They are characterized by earlier activity and smaller faults. Formation mechanism of the fault systems in the Gaoyou Sag suggests that the regional stress state and basement faults are two key factors in controlling fault system orientation and active methods, and role and effect of the basement faults should be ignored.