Since the number of raw material selections for the synthesis of carbon dots (CDs) has grown extensively, herbal medicine as a precursor receives an increasing amount of attention. Compared with other biomass precursors, CDs derived from herbal medicine (HM-CDs) have become the most recent incomer in the family of CDs. In recent ten years, a great many studies have revealed that HM-CDs tend to be good at theranostics without drug loading. However, the relevant development and research results are not systematically reviewed. Herein, the origin and history of HM-CDs are outlined, especially their functional performances in medical diagnosis and treatment. Besides, we sort out the herbal medicine precursors, and analyze the primary synthetic methods and the key characteristics. In terms of the applications of HM-CDs, medical therapeutics, ion and molecular detection, bioimaging, as well as pH sensing are summarized. Finally, we discuss the crucial challenges and future prospects.