The gut microbiota (GM), often regarded as a vital 'functional organ,' plays a crucial role in human physiological processes. GM is involved in substance metabolism, especially the biotransformation of pharmaceuticals. It modulates drug pharmacological activity and bioavailability through various metabolic pathways. Since traditional Chinese medicine (TCM) is primarily administered orally, its active compounds inevitably interact with the GM. This review systematically explores the bidirectional interplay between TCM and GM. GM metabolizes TCM components via enzymatic reactions (e.g. hydrolysis, reduction, and deconjugation) and interactions with metabolites, thereby enhancing bioavailability and sometimes modifying pharmacological properties. Conversely, TCM influences GM composition and function by promoting beneficial taxa, restoring microbial balance, and regulating microbial metabolites such as short-chain fatty acids and bile acids. The TCM-GM interaction shows promise in treating chronic diseases, such as inflammatory bowel disease, mental disorders, and cardiovascular diseases. However, challenges remain in fully understanding these interactions due to the complexity of TCM formulations and individual variations in GM composition. Future research should employ multi-omics approaches to develop personalized TCM therapies based on individual GM profiles.