Atopic dermatitis (AD) is a common relapsing inflammatory skin disease characterized by severe pruritus that seriously affects the quality of patients’ life. There is an increasingly large amount of research demonstrating that traditional Chinese medicine (TCM) including herbal formulae and bioactive ingredients exerts pharmacological effects on atopic dermatitis. It has been a long history of TCM being used to treat atopic dermatitis, especially in preventing disease recurrence, maintaining long-term remission, and reducing disease burden. Nowadays, both of TCM monomer preparations and traditional formulae are still widely used. This review focuses on TCM as well as its bioactive ingredients for the treatment of AD, from the perspectives of animal model construction, pharmacodynamic mechanisms and clinical studies of formulae. To be more specific, the regulation and molecular mechanisms of the herbal formulae and bioactive ingredients of TCM are investigated, and the latest clinical research on TCM formulae is discussed. Furthermore, it provides a summary of the strengths and utilities of TCM, and will be useful for doctors who use Chinese medicine for treatment or researchers who select candidates for clinical treatments or further high-quality clinical studies.