Since its foundation in Shundi (an emperor) period (126 - 144 AD) of East Han Dynasty, Taoism has had a history of more than 1,800 years, or more loosely speaking, a history of over 2,000 years.

The basic ideas of Taoism are Changsheng (long living), Shen (god), and Xian (immortal), etc., and its doctrine has evolved from the academic thought of Taoists in the Spring and Autumn, and Warring States Period (770-256 BC). The religion of Taoism and the thought of Taoists are closely related, and to some extent, the former is the extension of the latter.

In addition, nature-worshiping and ghost-worshiping, popular in ancient Chinese society, also contributed a social and cultural basis to the formation of Taoism.

At the very beginning, there were two sects within Taoism: Fangxian Tao (square immortals) and Huanglao Tao (Yellow Emperor and Lao Zi).

Fangxian Tao was formed in about the 4th century BC, and was widely accepted by the upper-class society in today's Beijing, Hebei Province and Shandong Province, etc. Its aim was to get longevity and become immortal with the help of ghosts and gods. From the Warring States Period to the reign of Emperor Wudi of the Western Han Dynasty (5th century BC - 8th year BC), under the encouragement of both Taoist experts and emperors and kings, a famous movement in the history was initiated to seek longevity panacea in the sea. The immortal theory of Fangxian Tao became the basic belief in later Taoism, and its magic arts were later inherited and developed by Taoism. Fangxian Tao was combined with Huanglao school of thought afterwards.

Huanglao Tao is the mainstream of Huang (Yellow Emperor) and Lao (Lao Zi, a philosopher) school of thought, and it is a combination of the philosophy in emperors' ruling, Wuxing (five elements: metal, wood, water, fire, earth) of Yin (negative) and Yang (positive), and the immortal theories. Although like Fangxian Tao, it had neither systematic doctrines nor formal religious organization, it was a crucial phase in the formation of Taoism, and served as the precursor of Taoism.

During the reign of Emperor Shundi (126-144) of the Eastern Han Dynasty (25-220), Zhang Ling created Wudoumi (five pipefuls of rice) Tao in Sichuan Province, and then during the reign of Emperor Lingdi (172-178) of the Eastern Han Dynasty, Zhang Jiao established Taiping (peace) Tao. These marked the real formation of Taoism.

During its popularization since its birth, Taoism had long been a kind of high-level culture, and widely pursued by the upper-class society. Consequently, many leaders of Taoism had gained respects from the imperial governments. However, since the 12th century, Taoism began to decline due to its own reasons, the attitude change of the government as well as the revival of other religions. From then on, Taoism started to spread in the lower-class society, and its witchcraft elements facilitated its influence on the folk society.

Since the Ming Dynasty (1368-1644), the influence of Taoism on folks had become stronger and stronger. In the mean time, people held a mussy, superstitious, and vulgar faith in religions because of their illiteracy. In order to attract followers, the doctrine, form and content of Taoism had been randomly modified to cater for people's psychological needs, and finally Taoism became a mixture with no unique features. During this period, Taoists were of low quality, and knew little about the doctrine and laws of Taoism. They could only carry out some religious rites to satisfy people's demand. Along with the decline of the normal Taoism, some folk religions of even lower level, which were even more ridiculous in both form and content, prospered in the name of Taoism.

The combination of the vulgarization of Taoism and people's needs has developed into a series of superstitious activities in Chinese folk society, such as fortune-telling and lots-drawing.