The invention discloses a compound Chinese herbal capsule for diabetes mellitus and a preparation method thereof. The capsule includes, by weight ratio, 20-35 g of hairyvein agrimonia herb, 30-45 g oflotus plumule, 20-35 g of stiff silkworm, 25-40 g of Chinese magnoliavine fruit, 20-25 g of earthworm, and 20-35 g of vietnamese sophora root. The capsule can restore the relative insufficiency of insulin secretion, or the function of glucose metabolism disorder caused by inappropriate secretion of insulin glucogon; the capsule has the efficacy of nourishing yin and moistening lung, clearing theheart and eliminating vexation, tonifying stomach and promoting fluid, nourishing liver and kidney, nourishing yin to moisten dryness, benefiting qi and clearing heat, promoting the production of bodyfluid to quench thirst, and promoting blood circulation and resolving phlegm; for type 2 diabetes mellitus, the capsule is small in dosage, fast in effectiveness, short in healing time, high in curative effect and small in side-effect; lifelong medication is not required after cure; blood sugar can be stable and does not rebound; and therefore, simultaneous treatment of principal and subordinatesymptoms can be achieved, the diabetes mellitus can be fundamentally cured, and effective rates can reach 95%, and cure rates can reach more than 84%.