The Early Devonian Xitun Vertebrate Fauna, represented by early members of crown sarcopterygians, such as Youngolepis, Diabolepis, Psarolepis, Achoania and Styloichthys, is mainly hosted in the Xitun Formation in the Qujing area, East Yunnan of China. Despite numerous research articles describing taxa from this famous Lochkovian fauna and its sedimentary and tectonic environments, there is no objective and coherent interpretation of the palaeoenvironment in which these early vertebrates lived. Based on detailed field geological investigation in recent years in the surrounding areas of Qujing City and measurements from the Xitun Formation section, this paper focuses on the analysis of some geochemistry indices of major, trace and rare earth elements to accurately elucidate the sedimentary environment of the Xitun Formation and deepen our understanding of the relationship between Early Devonian fishes and the environment. The analyses of the sensitive geochemistry indices of depositional and tectonic settings, sedimentary provenance, weathering, palaeoclimate, palaeosalinity and palaeoredox conditions indicate that the Lower Devonian Xitun Formation in East Yunnan was mainly deposited in a shallow marine setting with three phases of seawater–freshwater influx under a warm and humid climate, and a stable, oxygen-rich condition, which promoted the flourishing of Early Devonian marine fishes.