A structure and a formation method of a package structure are provided. The method includes disposing a first semiconductor die over a carrier substrate and forming a first protective layer to surround the first semiconductor die. The method also includes forming a dielectric layer over the first protective layer and the first semiconductor die. The method further includes patterning the dielectric layer to form an opening partially exposing the first semiconductor die and the first protective layer. In addition, the method includes bonding a second semiconductor die to the first semiconductor die after the opening is formed. The method includes forming a second protective layer to surround the second semiconductor die.