The invention discloses a medicine for treating kidney yin deficiency type diabetic retinopathy and a preparation method thereof. The medicine comprises the following raw medicinal materials: smallflower microtis, cortex phellodendri, barbary wolfberry fruit, herba cistanches, semen cuscutae, stachys geobombycis, dendrobium, polygonum cuspidatum, astilbe chinensis, radix salviae miltiorrhizae, cortex acanthopanacis, radix cudramiae, fringed pink, motherwort fruit, cortex albiziae, iris tectorum maxim, Chinese milkvetch seed, rhizoma corydalis, tribulus terrestris, ternate grape fern herb, semen cassiae, semen plantaginis, selfheal, fructus viticis, tea leaf, mentha haplocalyx, hedera helix, capitate knotweed herb, urena procumbens, chondrilla juncea, inula flower, common yam rhizome and liquorice. The medicine disclosed by the invention has the effects of nourishing yin and tonifying kidney and activating blood and improving eyesight and is used for treating kidney yin deficiency type of diabetic retinopathy; and the preparation process is easy and convenient, the agent is easy to prepare, and the cost is low. Scientific compatibility is realized among traditional Chinese medicinal materials of different drug properties, an ideal treatment effect can be achieved, the medicine is safe, does not have any side effect and can directly reach the focus, the healing time is short, and the disease is difficult to reoccur after being healed.