Mud shale hydration and swelling are major challenges in the development of water-based drilling fluids (WBDFs). In this work, the inhibition performance and inhibition mechanism of polyethylene glycol (PEG) and potassium chloride (KCl) were investigated by hot rolling recovery tests, linear swell tests, Fourier transform infrared spectroscopy, X-ray diffraction, atomic absorption spectrophotometry and X-ray photoelectron spectroscopy. The experimental results show that the combination of PEG and KCl achieved higher recovery and lower linear swelling rate than those obtained by individual PEG or KCl. Compared to the d-spacing of Na-montmorillonite (Na-Mt) with PEG or KCl, the d-spacing of Na-Mt with PEG+KCl was lower, which indicates that KCl and PEG have synergistic inhibition effect. This synergistic effect can replace sodium ions and water molecules from the interlayer space of Na-Mt and decrease the d-spacing of Na-Mt. Based on the above experimental results and analysis, a method for optimizing PEG and KCl concentrations was proposed and further verified by rheological and hot rolling recovery tests of WBDFs. Hence, the results of this work can provide valuable theoretical guidance for developing other synergistic inhibitors.