In Asia, processed Atractylodis Rhizoma, the dried rhizome of Atractylodes ovata DE CANDOLLE (Compositae), is widely used as a tonic agent in herbal diets; stir-frying with soil is the most common processing method. In this study, we focused on determining variations in the function and concentrations of sesquiterpenoids in processed Atractylodis Rhizoma. Raw Atractylodis Rhizoma was processed by stir-frying it with different assistant substrates (i.e., red soil and burnt clay). The results indicated that there was less atractylon in stir-fried materials than in raw materials. However, there were higher levels of atractylenolides II and III in stir-fried materials than in raw materials. We also found that the heavy-metal content in burnt clay exceeded regulations set by the Taiwanese government. Moreover, commercial Atractylodis Rhizoma in Taiwan exhibited great differences in concentrations of the active components. In addition, atractylon showed stronger cytotoxicity than atractylenolides II and III in various cell lines. Therefore, we suggest that the toxic effects of atractylon are reduced following atractylon degradation to atractylenolides II and III. In conclusion, the toxicity of Atractylodis Rhizoma is reduced through processing.