The invention provides a traditional Chinese medicine composition for treating osteoarthritis and a preparation method thereof. The traditional Chinese medicine composition is prepared from from the following raw material medicines in parts by weight: 10-20 parts of poria cocos, 5-15 parts of cassia twigs, 2-8 parts of rhizoma atractylodis, 2-8 parts of cortex phellodendri, 2-8 parts of radix stephaniae tetrandrae, 2-8 parts of polyporus umbellatus, 2-8 parts of rhizoma drynariae, 5-15 parts of rhizoma corydalis and 3-9 parts of radix cyathulae. The composition disclosed by the invention has the functions of tonifying spleen, promoting diuresis, dispelling wind, clearing heat, dredging collaterals and relieving pain, and is clinically applicable to patients suffering from rheumatic fever arthralgia in the attack stage of knee osteoarthritis, wherein the patients have the symptoms of swelling, pain, unfavorable flexion and extension and even local pyrexia, redness and swelling of joints, fat and big tongue body with tooth prints, yellow and greasy tongue coating and few pulse strings. When the composition provided by the invention is used for intervening in a rabbit with knee osteoarthritis, results show that the composition can relieve symptoms like joint swelling and skin temperature rise of the rabbit with knee osteoarthritis, improve joint functions, reduce the contents of IL-1[beta], TNF[alpha], PGE2 and NO in joints, relieve synovitis and delay the progress of knee osteoarthritis. Clinical observation results show that the composition provided by the invention has theeffects of relieving swelling and pain and improving joint functions for patients with knee osteoarthritis.