The translation of Dao De Jing by Arthur Waley, The Way and Its Power, has become a classic. One of its marked features is that the translation includes a lot of contextual reconstruction. In an effort to bring out the original message of the source text, the translator seeks to reconstruct the historical-cultural context of the original work from social, spiritual and conceptual aspects. The translator constructs a diachronic and synchronic cultural network for the translation, highlighting the internal perspective in intercultural communication, with typical thick translation features. This is an important factor for the translation’s canonization. The study also finds that, owing to the restriction of the translator’s social-historical context, there are also confusions and collages in the contextual reconstruction. Despite the flaws, both the methods Waley adopted in his contextual reconstruction in translating Dao De Jing and the flaws that occurred in that process are of great significance in many aspects for translation studies, and for the current “Chinese culture going global” programme in particular.