The invention discloses indoor antibacterial and environment-friendly water paint for removing formaldehyde and a preparation method thereof, the indoor antibacterial and environment-friendly water paint is prepared by proportioning of water-based self-crosslinking polyacrylic acid resin emulsion, deionized water, a silver ion solution, rutile titanium dioxide, Maya blue, nano silica, a thickening agent, 2,2,4-Trimethyl-1,3-pentanediolmono(2-methylpropanoate) film-forming additive and other raw materials according to a certain weight ratio, grinding, dissolving, stirring, mixing and other a series of operations, the indoor antibacterial and environment-friendly water paint is environment-friendly water paint which has a very strong sterilization function, is safe and pollution-free, can easily adsorb the formaldehyde and other harmful gases, can minimize the reduction of damage of natural environment pollution to human health, and is suitable for decoration of hospitals, places of entertainment, theaters and other public places and family indoor decoration.