Example packet processing methods and devices are described. One example method includes that a first device identifies a received first packet through a first FlexE shim layer disposed in the first device. When identifying that the first packet is a flexible Ethernet (FlexE) packet, the first device performs timeslot mapping on the first packet, then encapsulates the first packet into a first gigabit passive optical network encapsulation mode (GEM) frame. One first identifier is selected by the first device from at least one identifier reserved for a FlexE service, and is allocated to the first GEM frame, where the first identifier is used to indicate that the first GEM frame is a GEM frame corresponding to the FlexE packet. The first device sends the first GEM frame that carries the first identifier.