Carbon dots (CDs) are a novel type of fluorescent nanoparticles with a particle size smaller than 10 nm. They possess several advantageous properties, including excellent biocompatibility, light stability, water solubility, and low toxicity. CDs have been widely researched in recent years. As a treasure of ancient Chinese science, traditional Chinese medicine (TCM) is rich in various active ingredients and has a variety of pharmacodynamic effects, which have been used for thousands of years. TCM-CDs prepared with TCM as carbon source can create some special functions and then may play a greater medicinal value. The purpose of this review was to engage in an in-depth conversation about the use of TCM-CDs in medical therapy and bioimaging. Firstly, this study provides a comprehensive exploration of different synthesis methods for TCM-CDs, comparing their respective advantages and disadvantages. Subsequently, the intrinsic pharmacological activity of TCMCDs, encompassing antibacterial, hypoglycemic, hemostatic, anticancer, and anti-inflammatory effects, is mainly discussed, alongside their underlying mechanisms of action. Additionally, investigations into in vitro imaging of diverse cell types and the distribution and uptake of TCM-CDs under in vivo imaging guidance are presented. Finally, the significance of TCM-CD research, key challenges and issues within this field, and future directions for development are summarized and outlined.