The invention provides a multifunctional shampoo with medical hair caring effect and a preparation method thereof. The shampoo is prepared from the following Chinese medicinal materials of (by weight parts): dried alum 4-6, Salix babylonica twig 40-60, Morus alba leaf 20-40, Rhizoma Polygonati 20-30, Chrysanthemum morifolium flower 15-30, Mentha haplocalyx 10-20, Panax ginseng 20-40, Polygonum multiflorum 20-30, Platycladus orientalis leaf 5-7, Folium Pini 10-16, Gastrodia elata 8-12, Angelica dahurica 6-10, Ligusticum chuanxiong 5-9, Eclipta prostrata 6-8, Morus alba fruit 15-20, Spirodela polyrrhiza 20-40, Pogostemon cablin 8-12, Flos Magnoliae 6-8, Artemisia annua 8-12, Cannabis sativa seed 5-9, Radix Et Rhizoma Rhei 6-8, and Rosa rugosa flower 0-18. The shampoo has hair caring, dandruff removing, antipruritic, hair growth promoting, alopecia preventing, hair cell metabolism activating, hair quality improving, and hair blackening effects and blood circulation effect in head promoting,; and has the advantages of easily accessible raw materials, low cost, simple preparation method, and no side effects.