The invention relates to putty powder, in particular to functional diatomite putty powder and a preparation method thereof, wherein the putty powder includes in percent by weight: 10-50% of high-temperature activated diatomite, 5-30% of an inorganic binder, 30-70% of an inorganic filler, 0.01-2% of a functional aid, 0.1-5% of an inorganic pigment, 0.5-5% of an organic binder, and 0.5-5% of an organic aid. The functional diatomite putty powder meets the related standard requirements of putty powder and diatomite, and has qualified constructability and functionality, namely having standard-meeting properties such as humidity regulation, formaldehyde clarifying performance, long duration of formaldehyde purifying performance, mold-proof performance, and mold durability.