Khaneh-Zu Formation (Oxfordian- Kimmeridgian) is a hydrocarbon reservoir in Kopet Dagh basin. The main objectives of this research are investigation of microfacies, depositional environment, and diagenetic processes of this formation in two outcrop sections in Kopet Dagh basin in the north east of Iran. Based on field observation and petrography, 9 microfacies have been identified. These microfacies have been deposited in 4 facies belts including inner, mid ramp, outer ramp and basin. The evidences such as types and percentages of allochems, gradational lateral and vertical change of microfacies and lack of great barrier reefs it can be concluded that Khaneh-Zu Formation has been deposited in a carbonate ramp platform. Diagenetic processes including micritization, bioturbation, dissolution, cementation, chemical compaction, dolomitization and fracturing are identified in Khaneh-Zu Formation. Dolomitization, fracturing and cementation are the most important diagenetic processes in this formation. Over-dolomitization cause to occlude intercrystalline porosity and so has not positive effect on reservoir quality. Dissolution formed isolated vuggy type porosity and so has not positive effects on permeability. Different phase of fracturing occurred in the Khaneh-Zu Formation, but most of them filled by different types of calcite cements. So, as a point of view of reservoir characterization, the studied interval shows poor reservoir quality.