Upper Cretaceous and Paleogene sediments in the Tarim Basin (western China) are archive of the easternmost remnants of the early Paratethys Sea, an epicontinental sea that covered a large part of Eurasia and probably extended into the Mediterranean Tethys in the west. Its final retreat out of the Tarim Basin has been suggested to be associated with the Indo‐Asia collision and/or with eustatic sea level falls, e.g. like those across the Eocene‐Oligocene transition (EOT, ~34 Ma). However, a recent study dated the final retreat at youngest as earliest Priabonian (~37 Ma), so mismatching previously documented major eustatic sea level falls, like the ones associated with the EOT. In order to better understand the timing of the regional Paratethys Sea retreat and its paleoenvironmental impact, new magneto‐ and biostratigraphic data were collected from three earlier studied sections, respectively Aertashi, Kezi and Keliyang. Moreover, two new sections, Mine and Kansu, have been studied and sampled. We investigated the organic walled remains of surface dwelling dinoflagellates (dinocysts), that allowed for biostratigraphic correlation with other calibrated sections. Furthermore, dinocyst assemblages sensitively record environmental changes, which provided the opportunity to reconstruct paleoenvironments of the Tarim Basin. The similarity of assemblages to other assemblages at distal locations may indicate surface– ocean connections between these sites. Using dinocysts and paleomagnetic date, the uppermost marine deposits from the Aertashi section may correspond to Chron C18r (~40 Ma) or C17r (~38 Ma), of which the latter solution is favoured. The paleomagnetic data from the Mine section turned out to be remagnetized. Relying on dinocysts, the uppermost marine strata from the Mine section have been tentatively correlated to Chron C16n.1r (middle Priabonian, ~35.7 Ma). Both results confirm that the youngest marine deposits in the Tarim Basin clearly predated the eustatic sea level fall across the EOT. However, the EOT and its associated sea level fall cannot be excluded as a mechanism for the final retreat. In such a scenario the youngest marine strata would have been eroded. Furthermore, the recognized sea level fluctuations may correlate to eustatic sea level curves, albeit distal tectonic activity cannot be excluded. Dinoflagellate assemblages indicate shallow marine environments (~50m water depth) for the sections during the early Priabonian, wherein periods of more open marine (less proximal) conditions were alternated with more restricted ‘lagoonal’ circumstances. These changes from ‘lagoonal’ to ‘marine’ influences may signify alternations of sea level and/or evaporation. Moreover the dinoflagellate assemblages show a strong correspondence to the assemblages in the Turgay region and in a lesser extent to some Italian sites, which confirms that surface water connections existed from the Tarim Basin to the Tethyan and the Turgay regions during the Eocene.