The Kahar Formation at its type locality in the KaharMountain, 75 km NW of Tehran, consists of about 1000 m of siliciclastic rocks (mainly mudrocks). This study focuses on the mineralogical and geochemical composition of these mudrocks to identify possible source areas and their tectonic setting. The optical microscopy and XRD studies suggest that the mudrocks are rich in quartz and feldspar (especially plagioclase) and have low phyllosilicates (mostly illite and chlorite). SEM-EDX petrographic investigation of mudrocks reveals that platy illite and chlorite may have formed during the diagenesis (illitization and chloritization). Classification of studied mudrocks based on the maturity index, indicate that they are tectic and phyllo-tectic types, deposited in basins related to an (continental) island arc tectonic setting. The Chemical Index of Alteration (average 70) and A–CN–K parameters indicate that a moderate chemical weathering has taken place in the source region of the Kahar mudrocks. In addition, the chemical composition of mudrocks suggests that the amount of sediment recycling is very low in the Kahar deposits. The geochemical discrimination diagrams, immobile trace element ratios and Rare Earth Elements of mudrocks suggest that the Kahar mudrocks were derived mainly from the felsic sources and deposited in the basins related to an island arc tectonic setting. The resulting model for the tectonic setting of the Kahar basin during the Late Neoproterozoic can be best explained by recently models that considered Iran as part of Peri-Gondwanan terranes, similar to the Avalonia and Cadomia arc terranes, occupying the northern margins of Gondwana.