Abstract: Natural herbs demonstrate significant therapeutic potential in managing chronic and complex diseases; however, their clinical application faces limitations due to low bioavailability, instability, toxicity, and herb-drug interactions. Furthermore, insufficient standardized evidence and global acceptance impede their widespread adoption. Liposomes, nanocarriers consisting of a phospholipid bilayer enclosing an aqueous core, present a promising approach for enhancing the pharmacokinetics and therapeutic efficacy of herbal compounds. These adaptable systems can encapsulate both hydrophilic and hydrophobic agents, enabling targeted drug delivery and enhanced stability. Moreover, liposomes can be modified to carry diagnostic and imaging agents, enabling precise disease detection and monitoring. While liposomes offer potential as an innovative delivery technology for herbal remedies, their application in Traditional Chinese Medicine (TCM) remains relatively unexplored. TCM, with its holistic, energy-based approach to health and organ function, presents distinct challenges regarding formulation and delivery. This review examines the therapeutic potential of herbal medicines, emphasizing how liposomes address delivery challenges within the TCM framework. It also investigates the integration of TCM with Western medical practices, demonstrating how liposomal systems may bridge these approaches. The review analyzes key formulation techniques for TCM-loaded liposomes, particularly the microfluidic method, which demonstrates superior control over particle size and encapsulation efficiency compared to conventional methods. The analysis addresses barriers to integrating liposomal delivery systems with TCM, including physicochemical properties, scalability issues, and regulatory challenges. Finally, this review provides strategic recommendations for overcoming these obstacles and identifies future research directions to maximize the potential of liposomal technology in enhancing TCM therapies.