Diatoms were analyzed in a laminated sediment sequence from the middle Miocene, lacustrine Shanwang Formation, Shandong Province, eastern China, to reconstruct past conditions in the lake and evaluate relationships between inferred changes in the aquatic and terrestrial environments. Changes in the diatom assemblages over the 22.9-m-long sediment sequence were used to assign 19 lithologic layers to five zones. In Zone 1, Aulacoseira cf. distans and Melosira youngi were dominant in diatomaceous laminations. In Zone 2, only a few Aulacoseira spp. and Cymbella spp. were found in the yellow-green mudstone samples. In Zone 3, benthic pennate taxa, such as Fragilaria, Pinnularia, and Cymbella dominated in parts of the laminites. In Zone 4, Aulacoseira taxa regained dominance, and in Zone 5, benthic diatoms were found in only one sample. Shifts in the diatom assemblages and other sedimentological evidence indicate a change in the water level from a relatively deep system (> 8-12 m) to a mudflat, then fluctuating water levels (8-12 m), shallower conditions (4-8 m), and finally a terrestrial environment. Abundant Aulacoseira indicate not only cold water, but also wind-induced turbulence. Water depth fluctuations coincided with the aridity index, reflected by terrestrial plant fossils in the sediments. Water pH, total phosphorus (TP), and total organic carbon (TOC) reconstructions were undertaken using the European Diatom Database (EDDI), and results showed a correlation between fluctuating water levels and volcanic activity in Zone 3.