The invention relates to a bio-organic fertilizer produced by the use of municipal sludge and a production method thereof. The production method is characterized by comprising the following steps of: using municipal sludge, a quicklime powder, ferrous sulphate, magnesium sulfate, corn straw, a rapid fermentative strain inoculant for bio-organic fertilizers, a decomposing agent for organic materials, lysine, rice bran dry cake, bone meal, ammonium nitrate, monoammonium phosphate, potassium sulfate, triacontanol, compound sodium nitrophenolate, an organic activator and the like as raw materials, uniformly mixing by a twin-shaft paddle mixer, preparing a powder or particles, and packaging to prepare the municipal sludge bio-organic fertilizer product. The product has complete nutrient components, and contains nitrogen, phosphor, potassium and a plurality of trace elements as well as various nutrients such as organic acid which help the growth of crops. The production method has no pollution, requires low cost, has good benefits, and is used to solve the secondary pollution of municipal sludge, protect the environment and save lands. .