The invention relates to a traditional Tibetan medicine composition for treating nervous system diseases and a preparation method thereof. The traditional Tibetan medicine composition comprises an ethanol extract, a volatile oil beta-cyclodextrin inclusion compound, a water extract, an acid hydrolyte and fine medicinal material powder, and a conventional auxiliary material can be added to prepare a common pharmaceutical preparation, especially microcrystalline cellulose is added to prepare a micro-pill preparation. The invention discovers that the acid hydrolyte in the composition achieves very significant contribution to anti-inflammatory and pain-easing medicaments, the drug effect is improved along with the increase of the dosage of the acid hydrolyte, but when the dosage reaches 50 weight parts, the drug effect shows a relative saturation platform stage. The volatile oil which is obtained by adopting supercritical extraction is subjected to beta-cyclodextrin inclusion, so that the yield and stability of the volatile oil are improved, and insoluble medicinal materials are subjected to superfine crushing so as to facilitate preparation. According to the preparation method, the process parameters of various preparations of traditional Tibetan medicine micro-pills are optimized.