The Cretaceous to Cainozoic age Capricorn Basin is a northwest to southeast elongate basin located off the southeast coast of Queensland. Water depths range from 3500 metres in the southeast where sediments are up to 4000 metres thick, to 100 metres at the northern basin margin. The basin is poorly explored, with only three wells drilled (all dry) and no significant exploration activity since 1968.

There are two possible models for the tectonic evolution of the Capricorn Basin. One model is that the Capricorn Basin formed during the Late Jurassic-Early Cretaceous from the same extensional event that formed the Townsville and Queensland Basins farther north. An alternative model is that the Capricorn Basin formed in the Late Cretaceous as a failed rift arm at the northern end of the Tasman rift system. This second model divides the basin fill into five basin phases: Late Cretaceous to Early Palaeocene rift phase; Late Palaeocene to Early Eocene late rift phase; Early to Middle Eocene early thermal sag phase; Middle to Late Eocene post-tectonic structural reactivation phase; and a Late Oligocene to Recent late sag/rapid regional subsidence phase. The stratigraphy of the Capricorn Basin consists of continental rift-phase conglomerates and red beds of Late Cretaceous to Early Palaeocene age.

These are overlain by Eocene age mixed marine and continental quartzose sandstones and lignites, in turn overlain by a thick marine sequence of Late Oligocene to Recent age limestone and marl. Although potential reservoirs and traps appear to be present, the petroleum prospectivity is considered low due to a lack of evidence for burial and thermal maturity of potential source rock intervals and by the absence of a proven regional seal.

In addition, most of the Capricorn Basin is located beneath the Great Barrier Reef Marine Park in which petroleum exploration is prohibited.