The invention discloses a medicine for treating insomnia and depression and a preparation method of a medicinal pillow inner made of the same, and is used for treating insomnia and depression. The invention is characterized in that the medicine for treating insomnia and depression is prepared from the following traditional Chinese medicines in parts by weight: 15 parts of self-heal, 8 parts of radix curcumae, 8 parts of prepared rhizoma cyperi, 8 parts of hemlock parsley, 8 parts of radix sileris, 15 parts of Flos Caryophyllata, 15 parts of flower of silktree, 15 parts of rose, 15 parts of Matrtcaria chamomilla, 8 parts of radix salviae miltiorrhizae, 8 parts of angelica, 8 parts of red paeonia, 8 parts of capillary wormwood and 15 parts of oldenlandia. The preparation method of a medicinal pillow inner made of the medicine for treating insomnia and depression comprises the following steps: extracting radix curcumae, hemlock parsley, radix sileris, radix salviae miltiorrhizae, angelica and red paeonia with water, precipitating with alcohol, concentrating, drying under reduced pressure, pulverizing, mixing with pulverized self-heal, prepared rhizoma cyperi, Flos Caryophyllata, flower of silktree, rose, Matrtcaria chamomilla, capillary wormwood and oldenlandia, and bagging. The clinical experiment proves that the medicine for treating insomnia and depression has the characteristics of favorable curative effect and high safety, and is worthy of clinical application and popularization.