The main petroliferous basins in eastern China are Cenozoic fault basins, most of which have experienced two-stage tectonic evolution, i.e., rifting subsidence in the Paleogene and post-rifting thermal subsidence in the Neogene-Quaternary. The episodic tectonic evolution and syndepositional faulting had significant influence on the fault basins in terms of accommodation space, deposition rate, and depositional facies zones. In this study, the tectonic deformation characteristics and the tectonic-depositional evolution of the Western Sag of the Cenozoic Liaohe Depression were investigated by comprehensive analysis of the available geological and geophysical data using the modern theory of tectonic geology and the balanced section technique. The tectonic deformation of the Cenozoic fault basin was characterized by superimposed faults and depression. In addition, there existed relatively independent but still related extensional tectonic systems and strike-slip tectonic systems. The tectonic evolution of the fault basin involved five stages, i.e., initial rifting stage (E2s4), intense faulting stage (E2s3), fault-depression transition stage (E3s1-2), differential uplifting stage (E3d), and depression stage (N-Q). According to the characteristics of tectonic development and evolution of the Western Sag, the depositional evolution in the Cenozoic fault basin was divided into two stages, i.e., multi-episodic rifting filling in the Paleogene and post-rifting filling in the Neogene-Quaternary. The former rifting stage was further subdivided into four episodes with different characteristics of depositional development. The episodic faulting controlled the filling process and filling pattern of the Cenozoic Western Sag as well as the development and spatial distribution of associated depositional systems, whereas the syndepositional faults that developed in multiple stages in various tectonic positions controlled the development of depositional systems and sand bodies in the Western Sag. That is, the fault terraces on steep slopes controlled the development of sand bodies, the fault terraces on gentle slopes controlled the development of low-stand fan bodies, and the fault terraces or fault troughs in the central basin controlled the development of fluxoturbidite bodies.