The late Paleoproterozoic Dagushi Formation comprises a fluvial-lacustrine succession and represents the initial fill of the Xiong’er Basin in the southern North China Craton. Employing integrated outcrop surveys and detrital zircon U-Pb-Hf dating, this study examines the provenance and depositional setting of the Dagushi Formation. Five major depositional facies, including braided channel, distributary channel, subaqueous stream/mouth bar, pro-delta and shallow lake, were identified, based on lithofacies and associations. They were interpreted as representing a braided river delta-lacustrine system. The ages of the last metamorphic event of the basement, covering volcanics and the youngest zircon together constrain a depositional age of ca. 1.79 Ga for the Dagushi Formation. Zircon age distributions reveal a provenance change from ca. 2.7–2.5 Ga rocks in the lower part, to ca. 2.3–1.9 Ga sources in the middle-upper part of the Dagushi Formation. Considering the vertical sedimentology, this provenance change could be induced by the rising water-level caused by a tectonic subsidence. The ca. 2.7–2.5 Ga zircons are suggested to be locally sourced from the late Neoarchean–Paleoproterozoic metamorphic basement. The northeast Zhongtiao Mts area (current co-ordinates) is supposed to have appeared as a paleo-uplift and served as a source area for the Paleoproterozoic grains. The Dagushi Formation records an early ‘underfilled’ stage of the Xiong’er Rift.