The purpose of this study is to investigate historical and geographical environments in the development of the Naxi costumes of Chinese ethnic minorities and their characteristics—including religious cultures and totem worship—and to suggest the direction of fashion design toward the modernization of traditional costumes. The research methodology involved the collection of materials and investigatation into the history, culture, and characteristics of Naxi costumes; in particular, the “seven-star” sheepskin cape, one of the Naxi people’s important ethnic costumes as demonstrated by the women’s clothing that has been designed in reflection of this traditional costume. The results are as follows. First, Naxi costumes are found to have overall coherence and distinct locality when retained in the process of modernizing the traditional costume. The theme of this work is titled “By the Light of the Moon and the Stars,” which is expressed in contemporary fashion by the use of grey and dark red against a background of black, a color preferred by the Naxi people. Second, the Naxi people’s seven-star sheepskin cape is a symbol of women’s clothing with its characteristic patterns, shapes, and colors, and it is subject to creative modernization while retaining its unique ethnic characteristics. Third, the work expresses the contemporary stylishness of the costume while maintaining the customary decorative accessories from the Naxi people’s traditional culture.