Continental basin evolution can be influenced not only by tectonic activity, but by hydrothermal and weathering processes. This is displayed on the basement rocks (granites and xenoliths) and sedimentary cover (clays, sands and conglomerates) in the Cenozoic Ferreira basin of NW Spain. In this study, we applied petrological, geochemical and structural proxies to investigate a red clay unit and adjacent granitic basement rocks in a fault contact. Red clays have a lateritic composition (SiO2: 38–42 wt%, Fe2O3: 13–20 wt% and Al2O3: 24–29 wt%) with moderate to high contents in V (267–324 ppm) and Ni (46–71 ppm), and are characterized by (La/Yb)n and TREE that vary from ∼5 to 12 and ∼55 to 110 ppm, respectively. The basement rocks are peraluminous biotite granites (A/CNK: 1.12–13.57) with (La/Yb)n and TREE that vary from 7.7 to 27.42 and from 82.79 to 244.64 ppm, respectively. The xenoliths are peraluminous shales (A/CNK: 3.48–4.48) with (La/Yb)n and TREE varying from 7.66 to 11.10 and from 228.61 to 344.42 ppm, respectively. This geochemistry indicates that the lateritic red clays come from residual weathering of mafic ± intermediate rocks. They are interpreted to have been generated under the tropical climate conditions in the Late Cretaceous (∼70 Ma). Afterwards red clays were remobilized in subsequent tectonic events (Alpine), deposited in faulted grabens, and together with adjacent basement granites, affected by hydrothermal events that caused element mobility (e.g., REE leaching and Ce positive anomalies). Fault reactivations, under strike-slip stresses with a reverse component, channelized these hydrothermal fluids and uplifted part of the landscape. This uplift is interpreted as the trigger of an erosional regime that affected the lateritic red clay unit in the Ferreira basin. The conclusions of this study highlights the important interplay of different geological processes in small continental basins.