The invention relates to a traditional Chinese medicine composition for treating infantile hernia and water hernia (hydrocele) and a preparation method thereof. The traditional Chinese medicine composition comprises the following raw materials of caulis akebiae, gardenia jasminoides, angelica sinensis, rhizoma alismatis, polyporus umbellatus, poria cocos, radix aucklandiae, fennel, yam rhizome, honey-fried licorice root, szechwan chinaberry fruit, lychee seed, tangerine seed and white spirit. The traditional Chinese medicine composition is scientific and reasonable in component compatibility and excellent in effect, and the compatibility relation is mainly based on the fact that hernia and water hernia are heat pain and are directly related to small intestine meridians, bladder meridians and kidney meridians, so that raw material components which are cold and cool in medicine property, have the pain relieving effect, and components which act on the small intestine meridians, the bladder meridians and the kidney meridians are selected as the basis; in order to prevent children from being hurt after cold and cool medicines are taken, six warm medicines are added into the prescription; and meanwhile, angelica sinensis, white spirit, radix aucklandiae, fennel, lychee seed, tangerine seed and szechwan chinaberry fruit which have a promoting effect on treating hernia have small toxins, and honey-fried licorice root is added for harmonizing and detoxifying; and according to the preparation method, only decoction is needed, the process is easy to control, and large-scale production is facilitated.