Amyloid β (Aβ) plays a major role in the neurodegeneration of Alzheimer’s disease (AD). The accumulation of misfolded Aβ causes oxidative stress and inflammatory damage leading to apoptotic cell death. Traditional Chinese herbal medicine (CHM) has been widely used in treating neurodegenerative diseases by reducing oxidative stress and neuroinflammation. We examined the neuroprotective effect of formulated CHM Shaoyao Gancao Tang (SG-Tang, made of Paeonia lactiflora and Glycyrrhiza uralensis at 1:1 ratio) in AD cell and mouse models. In Aβ-GFP SH-SY5Y cells, SG-Tang reduced Aβ aggregation and reactive oxygen species (ROS) production, as well as improved neurite outgrowth. When the Aβ-GFP-expressing cells were stimulated with conditioned medium from interferon (IFN)-γ-activated HMC3 microglia, SG-Tang suppressed expressions of inducible nitric oxide synthase (iNOS), NLR family pyrin domain containing 1 (NLRP1) and 3 (NLRP3), tumor necrosis factor (TNF)-α, interleukin (IL)-1β and IL-6, attenuated caspase-1 activity and ROS production, and promoted neurite outgrowth. In streptozocin-induced hyperglycemic APP/PS1/Tau triple transgenic (3×Tg-AD) mice, SG-Tang also reduced expressions of NLRP1, NLRP3, Aβ and Tau in hippocampus and cortex, as well as improved working and spatial memories in Y maze and Morris water maze. Collectively, our results demonstrate the potential of SG-Tang in treating AD by moderating neuroinflammation.