Basin model studies which have addressed the importance of smectite conversion to illite as a source of overpressure in the Gulf of Mexico have principally relied on a single‐shale compaction model and treated the smectite reaction as only a fluid‐source term. Recent fluid pressure interpretation and shale petrology studies indicate that conversion of bound water to mobile water, dissolution of load‐bearing grains, and increased preferred orientation change the compaction properties of the shale. This results in substantial changes in effective stress and fluid pressure. The resulting fluid pressure can be 1500–3000 psi higher than pressures interpreted from models based on shallow compaction trends. Shale diagenesis changes the mineralogy, volume, and orientation of the load‐bearing grains in the shale as well as the volume of bound water. This process creates a weaker (more compactable) grain framework. When these changes occur without fluid export from the shale, some of the stress is transferred from the grains onto the fluid. Observed relationships between shale density and calculated effective stress in Gulf of Mexico shelf wells confirm these changes in shale properties with depth. Further, the density–effective stress changes cannot be explained by fluid‐expansion or fluid‐source processes or by prediagenesis compaction, but are consistent with a dynamic diagenetic modification of the shale mineralogy, texture, and compaction properties during burial. These findings support the incorporation of diagenetic modification of compaction properties as part of the fluid pressure interpretation process.