The objective of this study was to investigate the sources and pathways of methane in a heavily faulted sedimentary basin under coal seam gas exploration. The study site was in the Gloucester Basin, NSW, which at the time of this investigation was in an exploration and pilot testing phase of a major coal seam gas project. A comprehensive hydrogeophysical field-based approach was used. This included hydrochemistry, methane and carbon isotopes, methane concentration, noble gases and apparent age tracer data to characterise the surface water and groundwater aquifer system. Data acquisition was designed to identify locations of preferential groundwater and methane discharge along Waukivory River and the Avon River using a run‐of‐river survey during a baseflow period. Time domain electromagnetic (TEM) surveys were used to locate structural geological features within 100 m depth of the surface in the study area and to assist with the interpretation of the hydrogeochemical data. The results were used to formulate a conceptual model of groundwater–surface water interactions in the Gloucester Basin and to assess the potential role of faults as conduits for groundwater, methane and solute transport from deeper formations to the alluvium and river network. Large resistivity/conductivity changes in the near‐surface along the transect lines were attributed to faulting in the top 100 m of sediments. A number of sub‐vertical faults were identified, that extended to below the depth of investigation of the shallow TEM and coincided with later delineated faulting in seismic data. Helium, radon and methane trends in surface water all indicated some preferential zones or ‘hotspots’ for groundwater discharge, including potentially from deeper sources. The study showed that connectivity between deeper formations and the overlying alluvial aquifer and surface water system was associated with the location certain fault architectures. Whilst a small source of groundwater, the methane flux from deeper formations to the alluvium and surface water was still materially significant because of the extremely high methane concentrations found in coal seam and interburden material.