The Junggar basin is one of the largest oil-producing areas in China, and contains Upper Permian lacustrine oil shales with some of the greatest hydrocarbon potental in the world, In this study, we present the diagenetic characteristics of Permian-Triassic sandstones from the southern Junggar basin and evaluate their reservoir potential. The uppermost Permian and Lower Triassic Cangfanggou Group in the southern Junggar basin is characterized by alternating fluvial and lacustrine deposits, whereas the Middle-Upper Triassic Xiaoquangou Group was deposited predominantly in a lacustrine environment; fluvial and deltaic sedimentation was subordinate. The sandstones of the Cangfanggou and Xiaoquangou groups are volcanic litharenites. Their detrital modes and textures of volcanic fragments suggest a primarily andesitic/basaltic volcanic-arc provenance. Early diagenesis of the sandstones is characterized by nonferroan calcite cementation, grain-coating, pore-lining clay minerals, and the initial dissolution of detrital grains. Authigenic quartz; pore-filling phyllosilicates; pore-filling, grain-replacive zeolites; albitized detrital plagioclase; authigenic K-feldspar; illite; and late calcite dominate burial diagenesis. The formation of iron oxides and dissolution of calcite cement resulted from tectonic uplift during the Tertiary. Albitization and zeolite formation during burial are among the most pronounced diagenetic processes that affected these sandstones. Pore-filling clay minerals, calcite, and zeolites have substantially reduced sandstone porosity. However, appreciable primary porosity has been preserved by the formation of early clay coats and pore linings, which retarded further cementation. Secondary porosity is present to varying degrees in the sandstones and is the result of dissolution of unstable framework grains. In the Santai and adjacent areas of the southern Junggar basin, the Cangfanggou Group sandstones can be moderate to good quality reservoirs (measured core porosity ranges from 12.9 to 23.7%, averaging 18.2%), whereas the Xiaoquangou Group sandstones in general have relatively poor reservoir quality. Based on burial and thermal histories and diagenetic patterns, we predict that equivalent Permian-Triassic sandstone intervals in the enormous western part of the southern Junggar basin have potential as oil and (particularly) gas reservoirs.