Clay-type Li deposits are poised to play a pivotal role in addressing the surging global demand for Li. The McDermitt clay-type Li deposit, located in Nevada, is the largest Li deposit in the United States, with Li hosted by a clay-rich sequence of smectite-dominated intervals and illite-dominated intervals, respectively. However, the occurrence of Li and the genesis of Li-bearing minerals within smectite-dominated intervals have not been thoroughly investigated in previous research. Here, we studied the mineralogy, the in-situ Li distribution, and the bonding environments of Li within the smectite intervals using a combination of instrumental techniques including scanning electron microscope, transmission electron microscope, time-of-flight secondary ion mass spectrometry, and nuclear magnetic resonance. Our results indicate that the smectite exhibits low crystallinity characteristics of lacustrine clay authigenesis and is commonly found to fill the interstices among volcanic minerals or envelop them; Li is mainly hosted by Mg-smectite rather than the volcanic minerals. Within the tuffaceous sediment samples, the volcanic glass has undergone a transformation, resulting in its complete disappearance and alteration into clay minerals. Owing to the octahedral sites of Mg-smectite bounded in Li, it is referred to be hectorite. We interpret that the hectorite’s precipitation occurs in a high saline-alkaline water environment, a result of McDermitt tuff dissolution. This conclusion can be supported by the coexistence of spherulitic calcite and hectorite. Overall, this study confirms hectorite as the main Li-bearing mineral and increases the understanding of the genetic model of hectorite formation in intracontinental caldera basins.