The invention relates to a red mud composite fertilizer and a preparation method thereof. By weight, the red mud composite fertilizer comprises 60-70 parts of red mud, 3-5 parts of a red mud activator, and 30-40 parts of a nitrogen phosphorus and potassium compound fertilizer, wherein the mass ratio of N, P2O5 and K2O in the compound fertilizer is 1:0.3-0.6:0.3-0.5. The red mud activator comprises, by weight, 30-40 parts of activated carbon, 50-60 parts of medical stone, 15-20 parts of bamboo fiber, 5-6 parts of phytase, 2-3 parts of magnesium sulfate, 1-2 parts of zinc chloride and 5-10 parts of polyacrylamide. The red mud composite fertilizer has comprehensive nutrition, contains more than 40 nutrient elements, and can comprehensively supply nutrients needed by crops. The water stability of the product is increased by more than 10 times. The product has very strong chelation, adsorption and ion exchange capacity to nutrient elements, can enrich and store the nutrient elements in soil and fertilizers, coincides with crops' need for fertilizers and has slow release performance, and achieves ''on-demand supply'' or ''on-demand release'', thereby overcoming the contradiction between rapid fertilizer loss and slow crop absorption.