The Cambrian Yanwangbian assemblage (Series 2, Stage 4) in South Shaanxi, China, is one of the Burgess Shale-type faunas as it represents the only relatively diverse Cambrian biota from the north margin of the Yangzte Platform, South China. The paleoscolecids (Cycloneuralia) illustrated herein are one of the major components of the fauna, although they appear to be much less abundant than skeletonized fossils, according to available collections. A new taxon, Shaanxiscolex xixiangensis new genus new species, is described based on the scleritome pattern: each annulus has two rows of alternating Hadimopanella-type plates positioned close to the borders, and a mosaic pattern of microplates occurs between the plates and within intersegmental furrows. The occurrence of the new taxon confirms a fairly diversified and widespread distribution of paleoscolecidan worms recognized in the early Cambrian of South China. Moreover, the ecology of paleoscolecids is reappraised based on burial position of the S. xixiangensis and gut contens of Cambrian taxa from South China, hinting that paleoscolecids (at least some taxa) were both deposit feeders and carnivores, as well as active bioturbators in the substrates of the Cambrian sea, which sheds new light on the ‘Cambrian Substrate Revolution.’