Smectites affecting water and soil exchangeable cations, especially potassium and ammonium related to plants, are common swelling clay minerals in sediments and paleosols that can record paleoenvironmental and paleoclimatic information. Paleoenvironmental and paleoclimatic interpretations are potentially ambiguous, because smectite minerals may have either detrital or pedogenic origins. This study analyzes smectites in Lower Eocene paleosols of the Qaidam Basin, China, with the goal of determining their origin and paleoclimatic significance. Twelve smectite-rich vertisol samples were analyzed by X-ray diffraction (XRD), Fourier transform infrared spectroscopy (FTIR), inductively coupled plasma-mass spectrometry (ICP-MS), scanning electron microscopy (SEM), and differential scanning calorimetry (DSC) in the Dahonggou (DHG) section of the Lulehe Formation. The samples from DHG section contained predominant dioctahedral smectites (60–65%) in the <2 μm clay fractions. Minor dioctahedral illites, dioctahedral interstratified illite-smectite (I-Sm), kaolinite, and traces of dioctahedral chlorites and palygorskites were present. The chemical data and FTIR spectra revealed both tetrahedral substitutions (i.e., Al for Si) and octahedral substitutions (i.e., Mg and minor Fe for Al) in the dioctahedral smectites. Montmorillonite comprised the dominance of the fine-clay fractions (< 0.2 μm) with minor contributions of beidellite, as determined by the Greene-Kelly test (GK-test), geochemical and FTIR analyses. SEM observations revealed two morphological types of dioctahedral smectites, the less abundant one with typical ‘honeycomb’ structure, interpreted as neoformed, and the other occurring as thin, well-defined plates and irregular masses considered to be detrital. DSC revealed two dehydroxylation temperatures (500–550 °C and 600–700 °C), indicating the presence of trans-vacant (tv) and cis-vacant (cv) layers, respectively. The cv layers were attributed to montmorillonite originating as catchment-delivered detritus, as the study Lulehe Formation exhibited no evidence of volcanic ash layers or diagenesis that would have promoted formation of montmorillonite with high dehydroxylation temperatures. The tv layers represented pedogenic beidellite formed via solution crystallization in a floodplain pedogenic environment. The accumulation of abundant inherited montmorillonite and neoformed beidellite in paleosols of the Lulehe Formation was probably promoted by a relatively warm climate with alternating wet-dry seasons during the Early Eocene. Admixture of detrital montmorillonite makes paleoclimatic reconstructions based on bulk-smectites concentrations and isotopic compositions unreliable, showing that integrated clay mineralogical analyses of the type undertaken in this study are necessary to identify the provenance and paleoclimatic significance of smectites in sediments.