The invention discloses functional food with the hypoglycemic effect and a preparation method thereof. The functional food with the hypoglycemic effect comprises gracilaria agar-agar, sodium alginate, an astragalus extract, a kudzuvine root extract and a mulberry leaf extract according to a certain proportion. The preparation method comprises the following steps: preparing the astragalus extract, the kudzuvine root extract and the mulberry leaf extract; uniformly mixing the gracilaria agar-agar, the sodium alginate, the astragalus extract, the kudzuvine root extract and the mulberry leaf extract in a certain ratio, sealing with capsules, and tabletting by a wet method or making into granules. The functional food disclosed by the invention is reasonable in formula, high in safety and capable of reducing blood glucose level, is used for the adjuvant therapy of diabetic patients and has the effect of improving diabetic complications.