Abstract: Oil based drilling fluid is often used in shale gas drilling to solve the complex situations such as wellbore collapse, but oil-based drilling fluid has many disadvantages such as high cost and environmental pollution. With the promulgation of new environmental protection law and increasing awareness of environmental protection, therefore, it is urgent to develop a water-based drilling fluid which is suitable for shale gas drilling. Yanchang Oilfield is the first national continental shale gas demonstration area in China, Therefore, taking it as an example, this paper analyzes comprehensively the mineral composition and microstructure of extended shale in Yanchang Oilfield, and reveals the mechanism of wellbore instability and the idea of drilling fluid construction in this area. On the basis of this, the key additives of drilling fluid system are optimized and the formula is tested. A new water-based drilling fluid system has been developed. The performance of it is equivalent to the oil-based drilling fluid. The loss of water at high temperature and pressure is only 4.6 mL, the rolling recovery is over 95%, and the lubrication coefficient of extreme pressure is 0.103. The field application results show that new water-based drilling fluid can meet the performance requirements of drilling fluid for the extended shale gas horizontal well and guarantee effectively the safety of downhole. At the same time, it has certain reference value for the research and development of the shale gas water-based drilling fluid in China.