The invention discloses a novel Chinese medicinal composition for treating diabetes and a preparation method thereof. The Chinese medicinal composition mainly comprises the following raw material medicaments: mongolian snakegourd root, kudzuvine root, cochinchnese asparagus root, lilyturf, medlar, dendrobium, fragrant solomonseal rhizome, Indian buead, cinnamomvine, malt, rice-grain sprout, medicated leaven, gypsum, anemarrhena asphodeloides bunge, gardenia, common lophatherum herb, common selfheal fruit-spike, golden thread, lightyellow sophora root, raw rehmannia root, tree peony bark, red paeony root, cortex lycii radicis, oriental waterplantain rhizome, coix seed, immature bitter orange, tangerine peel, Japanese climbing fern spore, nutgrass galingale rhizome, costustoot, rhizoma corydalis, radix curcumae, ginseng, raw astragalus and the like. The Chinese medicinal composition can be prepared into any common orally-taken preparation by a conventional Chinese medicinal preparation method. The Chinese medicinal composition can remarkably improve the symptoms: polydipsia, polyphagia, diuresis, hypodynamia, emaciation and various complications caused by diabetes at the late stage and the like, and has extract clinical treatment effect, remarkable treatment effect and quick response. The Chinese medicinal composition also has the advantages of low cost, basically no toxic or side effect and the like.