As a traditional medical intervention in Asia and a complementary and alternative medicine in western countries, traditional Chinese medicine (TCM) has attracted global attention in the life science field. TCM provides extensive natural resources for medicinal compounds, and these resources are generally regarded as effective and safe for use in drug discovery. However, owing to the complexity of compounds and their related multiple targets of TCM, it remains difficult to dissect the mechanisms of action of herbal medicines at a holistic level. To solve the issue, in the review, we proposed a novel approach of systems pharmacology to identify the bioactive compounds, predict their related targets, and illustrate the molecular mechanisms of action of TCM. With a predominant focus on the mechanisms of actions of TCM, we also highlighted the application of the systems pharmacology approach for the prediction of drug combination and dynamic analysis, the synergistic effects of TCMs, formula dissection, and theory analysis. In summary, the systems pharmacology method contributes to understand the complex interactions among biological systems, drugs, and complex diseases from a network perspective. Consequently, systems pharmacology provides a novel approach to promote drug discovery in a precise manner and a systems level, thus facilitating the modernization of TCM.