Earthquakes induced by reservoir impoundment pose great risk to property and lives worldwide, but studies demonstrating relationships between reservoir water levels, specific faults, and the local geology are rare. Here we show that the 2013 M 5.1 Badong Earthquake, the largest earthquake so far in the Three Gorges Reservoir (TGR) region of China, occurred at a shallow depth on a right‐lateral south‐dipping strike‐slip fault. The fault is at least 15 km long and intercepts the TGR at the NS‐running Shennongxi River. We find that the earthquake and its foreshocks and aftershocks are confined to a fractured Triassic carbonate formation that crops out in the reservoir. The precise locations of earthquakes coupled with the local geology suggest that the sequence was induced by high pore pressure due to reservoir water infiltration in a specific rock type. The newly identified fault has the potential to generate earthquakes of magnitude approaching the designed seismic intensity limit of the Three Gorges Dam.