An integrated circuit package system with multi-chip module is provided including: providing an upper substrate having an upper chip thereon; positioning a lower chip under the upper chip, the lower chip having bottom interconnects thereon; encapsulating the upper chip and the lower chip with a chip encapsulant on the upper substrate with the bottom interconnects exposed; mounting the lower chip over a lower substrate with a gap between the chip encapsulant and the lower substrate; and filling the gap with a package encapsulant or chip attach adhesive.