The invention discloses a formaldehyde decomposition liquid which comprises the following raw materials in parts by weight: 5-30 parts of sodium phytate, 2-15 parts of activated carbon, 2-20 parts of sodium sulfanilate, 0.2-5 parts of titanium dioxide, 1-15 parts of glucoside, 0.5-8 parts of ethylenediamine tetraacetic acid, 0.5-5 parts of ethyl acetate, 0.5-12 parts of dicyandiamide, 1-15 parts of carbohydrazide, 1-15 parts of sodium thiosulfate, 1-15 parts of glycerol and 50-120 parts of distilled water. A preparation method comprises the following steps: mixing the distilled water with titanium dioxide and the activated carbon, stirring, heating, adding other raw materials, performing heating and heat preservation, cooling to the room temperature, and filtering, thereby obtaining the formaldehyde decomposition liquid. Under mutual action of the raw materials, the formaldehyde decomposition liquid disclosed by the invention has a decomposition function on harmful organic matters such as formaldehyde and ammonia gases, further has a cleaning effect on cigarette smell, toilet smell, garbage smell, animal smell and the like, has functions of sterilization and purification, and is capable of effectively removing indoor environment pollution.