Drilling-induced formation damage is the key factor dominating the failure of the development of hydrocarbon reservoirs with low-permeability (i.e., tight formation). In this paper, a new low-damage drilling fluid was formulated, evaluated, and applied to well-drilling operations in a sandstone oil reservoir with low-permeability in the Shengli Oilfield, China. To formulate this low-damage drilling fluid, filter-cake forming agents were used to prevent fluid loss, inhibitors were used to enhance the shale inhibition of the fluid, surfactants were used to minimize water block, and inorganic salts were used to enhance compatibility. A holistic experimental approach combining micro-computed tomography (CT), scanning electron microscopy (SEM), Fourier transform-infrared spectroscopy (FT-IR), and X-ray diffraction (XRD) techniques was designed to identify the underlying interactions between new and conventional drilling fluids and rock samples as well as the corresponding damage mechanisms, demonstrating the significant mitigation effects of the newly formulated drilling fluid on formation damage, which mainly results from the hydration of clay minerals and the invasion of solid particles. The newly formulated low-damage drilling fluid then extended its applications to well-drilling operations with excellent performance. Not only can the new low-damage drilling fluid avoid non-fracturing stimulation, but also reduce the drilling operational costs and time, minimize the formation damage, and facilitate extending the reservoir life for a longer time.