The invention discloses a bone-setting traditional Chinese medicine decoction and a preparation method thereof. The decoction comprises the following materials by weight:10-12 parts of Dragon's blood, 8-10 parts of natural copper, 4-6 parts of pseudo-ginseng, 10-12 parts of Rhizoma Drynariae, 4-6 parts of radix angelicae, 6-8 parts of angelica, 3-5 parts of frankincense, 4-6 parts of myrrh, 1-2 parts of red ginseng, 2-3 parts of safflower, 10-12 parts of Speranskia tuberculata, 2-3 parts of Ligusticum wallichii, 8-10 parts of melon seeds, 4-6 parts of Selaginella delicatula, 5-8 parts of Ainsliaea, 9-11 parts of Primula szechuanica, 6-9 parts of teasel root, 2-3 parts of epimedium, 5-8 parts of shrimp shell and 10-12 parts of sheep bone. The traditional Chinese medicine provided by the invention can significantly improve blood circulation, promote rapid healing of bone fracture, quickly repair bone fracture damage, shorten healing time and rapidly ease the pain response in the healing process, and has the advantages of short course of treatment, good curative effect and convenient usage; therefore, the decoction can fast and effectively treat bone fracture, sprain and contusion, etc.