The invention relates to a medicinal lining cloth and processing method thereof. The processing method includes the following technological steps: gray cloth detection, acid pickling, washing, alcohol leaching, stoving, high temperature reshaping, sterilizing and rolling up and packaging. The moisture content of the medicinal lining cloth is less than or equal to 0.5%; the content of one or multiple elements of copper, manganese and cobalt is less than or equal to 10ppm; the quantity of the contained bacteria is less than or equal to 100cfu/10cm2; the quantity of the contained mould and yeast is less than or equal to 100cfu/10cm2; and the quantity of staphylococcus aureus and pseudomonas aeruginosa is zero. The invention has the beneficial effects that: (1) adhesion failure and matrix dropping which are caused by ageing effect of the metal elements in paste to paste matrix can be avoided, stability of paste is good; (2) adhesion failure caused by moisture in the paste can be avoided, thus the stability of the paste is good; (3) skin infection caused by residue of pathogenic bacteria in the paste can be avoided, thus the safety of the past is higher; (4) processing is simple.