Abstract: Luhmann's system theory of law is very instructive for the discussion of the transformation of Chinese law and society. Luhmann's theory is divided into two stages: the early stage and the late stage. On the early stage, impacted by Husserl's phenomenology and Parsons' structural functionalism, this theory concentrated on the problem of complexity and contingency of world, the fall drop of complexity between legal system and environment, and its effect on the evolution of legal system. On the late stage, Luhmann absorbs many theories such as autopoiesis theory in biology, form theory, and second order of observation. In this stage, he considers law as one of the functional sub-system of the whole society, focus on the inner dynamic structure of operation of legal system, especially the inner difference of programm and code. In the late stage of Luhmann's system theory, the legal system is a system of self-observation, and self-reflection, which is related to the inner-differentiation of legal doctrine and legal theory inside legal system. System theory of law observes legal system's self-observation and self-reflection on the second order, that is, observation of the legal system's observation.