The religio-philosophical system presented by the Hua-yen Buddhist school of China was characteristically "Chinese" in the sense that it was not merely extensions of Indian Buddhist ideas but the reinterpretations and restatements of Buddhist thought within distinctively Chinese modes of thought and expression. Hua-yen, in this sense, was a "sinicized" Buddhism. This paper examines the philosophical background of this "sinicization process." The paper argues that the Taoist philosophy was one, possibly the most important, influence on this process. The paper tries to prove this by exploring specifically four major Hua-yen concepts derived from the Taoist tradition: hsuan (mystery), "returning to the source," t'i-yung (essence and function), and li-shih (noumenon and phenomenon).