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The Permian source rocks in the southern depression of the South Yellow Sea Basin have been proved to be fair-good source rocks. Based on the analysis of recent Paleozoic oil and gas exploration and research results, the thermal evolution and hydrocarbon generation process of Permian source rocks was analyzed by selecting appropriate geological parameters and using TSM basin simulation method, and then the potential of oil and gas resources was evaluated. The research shows that the Permian source rocks distributed in Cenozoic fault depression in the southern depression experienced a two-stage hydrocarbon generation and expulsion process. The first hydrocarbon generation and expulsion occurred from the Late Triassic to the Early-Middle Jurassic and the secondary hydrocarbon generation and expulsion mainly occurred in Paleogene. However, the Permian source rocks distributed in the uplift area only experienced the first hydrocarbon generation and expulsion process. The Permian source rocks have a total resource scale of 20.76×108 t and a resource abundance of 12.2×104 t/km2, reaching a medium abundance level, which can provide a certain material basis for the formation of oil and gas fields. The secondary hydrocarbon generation resources of the Permian source rocks in the whole southern depression account for 30.4% of the total resources, but it can reach 55% in the Cenozoic fault depression. The Cenozoic fault depression with Permian source rocks and Cenozoic source rocks developed is a favorable exploration area.