The coalescence of nanodroplets is an important interfacial phenomenon and is the key to many real-world applications. However, the microscopic mechanism for this process remains unclear. In this work, we propose a time-dependent density functional theory (TDDFT) to understand and predict this process. The formation of a "peanut" nanodroplet seems key to the coalescence process, before and after which the system is dominated by a nucleation mechanism and an ordinary diffusion mechanism, respectively. It appears that molecular attraction is not only the driving force but also the resistance of droplet coalescence. The velocity distribution indicates that there is a significant mass transfer on the vapor-liquid interphase. During coalescence, there is a clear linear correlation between the free energy and the surface area of the vapor-liquid interface, which means surface tension is the dominant contribution to the free energy.