Abstract: As the underground water-sealed storage is one of the important ways of oil and other energy storage in China, the development and innovation of basic theory and key technologies is of great importance. In the construction of the second phase of National Petroleum Reserve Projects in China, the entities involved in construction of those projects carried out the extensive scientific research and key technology research with reference to the actual construction conditions. However, the construction of the underground water-sealed oil storage in rock caverns with millions of cubic meters of reserves is a complex systematic project, which is still a new technology field in China. Thus, many key technologies related to the construction of large-scale underground water-sealed oil storage in rock caverns need to be studied in depth. Herein, the important research progress in the basic theory and key technologies of underground water-sealed storage in China in recent years was summarized. For the basic theory, the progress in water seal efficiency evaluation, water seal reliability analysis, and water inflow prediction method of storage caverns was introduced. For the key technologies, the progress in water sealing monitoring and evaluation technology, support design and stability monitoring technology was reviewed. Finally, five challenges and countermeasures in the construction of underground water-sealed storage were analyzed and summarized in combination with the development trend of underground water-sealed storage in China. The research results are expected to play a positive role in promoting the scientific and technological progress and high-quality development of underground water-sealed storage industry in China.