Purpose Chronic obstructive pulmonary disease (COPD), a prevalent obstructive airway disease, has become the third most common cause of death globally. Xuanbai Chengqi decoction (XBCQ) is a traditional Chinese medicine prescription for the acute exacerbation of COPD. Here, we aimed to reveal the therapeutic effects of XBCQ administration and its molecular mechanisms mediated by Th17/Treg balance and gut microbiota. Methods We determined the counts of Th17 and Treg cells in the serum of 15 COPD and 10 healthy subjects. Then, cigarette smoke extract-induced COPD mice were gavaged with low, middle, and high doses of XBCQ, respectively. Weight loss, pulmonary function and inflammation, Th17/Treg ratio, and gut microbiota were measured to evaluate the efficacy of XBCQ on COPD. Results COPD patients had a higher Th17/Treg ratio in the serum than healthy controls, which was consistent with the results in the lung and colon of COPD mice. The middle dose of XBCQ (M-XBCQ) significantly decreased the weight loss and improved the pulmonary function (FEV0.2/FVC) in COPD mice. Moreover, M-XBCQ alleviated lung inflammation by rectifying the Th17/Treg imbalance, reducing the expressions of TNF-α, IL-1β, and MMP-9, and suppressing inflammatory cells infiltration. Meanwhile, M-XBCQ greatly improved the microbial homeostasis in COPD mice by accumulating probiotic Gordonibacter and Akkermansia but inhibiting the growth of pathogenic Streptococcus , which showed significant correlations with pulmonary injury. Conclusion Oral M-XBCQ could alleviate COPD exacerbations by reshaping the gut microbiota and improving the Th17/Treg balance, which aids in elucidating the mechanism through which XBCQ as a therapy for COPD.