The study of microbial carbonates has acquired new significance with the recognition that they retain valuable information related to biomineralization processes associated with microbial activity throughout geological time. Additionally, microbialites have a demonstrated economic potential to serve as excellent hydrocarbon reservoirs. The Lower Cretaceous Codó Formation, located in the Parnaiba Basin of north-east Brazil, comprises a unique stratigraphic sequence of up to 20 m thick, well-preserved carbonate microbialites. Deposited in a continental basin during the initial break up and separation of South America from Africa in the Early Cretaceous, this lacustrine carbonate sequence provides an excellent example to investigate the palaeoenvironmental conditions controlling microbialite facies development. Based on macroscopic and microscopic observations of outcrop and drill core samples, four microbialite facies (stromatolite, lamina, massive and spherulite) were defined and distinguished by textures and microbial fossil content. Changes in facies type are related to alternating palaeo-water depths, as reflected by 87Sr/86Sr cycles resulting from fluctuations in the sources of meteoric water. Clumped isotope measurements of stromatolitic fabrics yield precipitation palaeo-temperatures with an average value of 35°C. The δ18O values of bulk carbonate (−6·8 to −1·5‰ Vienna Pee Dee Belemnite) imply precipitation from water with calculated δ18O values between −1·6‰ and 1·8‰ Vienna Standard Mean Ocean Water, reflecting precipitation from variably modified meteoric waters. The δ13C values of bulk carbonate (−15·5 to −7·2‰ Vienna Pee Dee Belemnite) indicate a significant input of carbon derived from aerobic or anaerobic respiration of organic matter. Combined, the data indicate that the evolution of the Codó Formation occurred in a closed lacustrine palaeoenvironment with alternating episodes of contracting and expanding lake levels, which led to the development of specific microbialite facies associations. The results provide new insights into palaeoenvironmental settings, biogenicity and early diagenetic processes involved in the formation of ancient carbonate microbialites and, by extension, improve the knowledge of the reservoir geology of correlative units in deep waters offshore Brazil.