A major collaborative project was undertaken to develop novel environmentally acceptable water-based drilling fluids with high membrane efficiency to help meet the future requirements of the petroleum industry. This paper describes the rationale of the project, the fundamental understanding of osmotic membrane generation in shale that lead to the development of the drilling fluids, and the practical guidelines for maintaining shale stability with the drilling fluids. Specialised test equipment, including membrane efficiency screening equipment, and test procedures were developed for simulation of key drilling fluid-shale interaction mechanisms. More than 300 membrane efficiency screening tests were performed on Pierre II shale samples to screen a wide range of novel compounds for their membrane generation capacity in the shale. Typical examples of the tests conducted with three novel compounds that generated moderately and highly efficient membranes are presented and discussed. The results demonstrate that some of the compounds are capable of generating membrane efficiencies of between 55% and 85%. The new generation of water-based drilling fluids that have been developed performs essentially like oil-based muds in terms of shale stabilisation. Practical mud design guidelines that have been developed can be used to optimise the drilling fluid design, in terms of mud weight, salt type and salt concentration, to manage efficiently time-dependent wellbore instability in troublesome shale formations.