Professor Shi Xinde’s new understanding of the ancient famous prescription “Xiaoyao Powder” is introduced systematically from three aspects： pathogenesis and symptoms recorded in the original text， principles of formula composition， and characteristics of the formula and syndromel. It is concluded that Xiaoyao Powder is a basic formula for regulating qi， blood and water， and the basic pathogenesis is liver blood deficiency， involving nutrient qi and defense qi disharmony syndrome， internal retention of water-dampness （phlegm-dampness） syndrome and liver qi stagnation syndrome， with left thin pulse and right wiry pulse. Two proven cases are presented.