The invention discloses an LPSO-phase strengthening high-damping rare earth magnesium alloy and a preparation method thereof. The magnesium alloy comprises the following elements of, by weight percentage, 2.7-3.8% of rare earth elements, 0.8-1.5% of Zn, 0.5-1.0% of Mn, and the balance Mg. With the adoption of a special LPSO phase of the magnesium alloy, the LPSO phase can exert the effect of improving the comprehensive mechanical property of the alloy and improving the damping property of the alloy, and the high-toughness and high-damping rare earth magnesium alloy is obtained; and according to the preparation method of the LPSO-phase strengthening high-damping rare earth magnesium alloy, with the adoption of a semi-continuous casting technology, the high-mechanical-property and high-damping rare earth magnesium alloy with the tensile strength of 180 MPa or more, the elongation percentage of 10% or above and the damping value of 0.065 or more is obtained, the finished product rate of the magnesium alloy is high, the machining forming property is good, the industrialization is easy to achieve, and the preparation method can be widely applied into sound transmission equipment of a loudspeaker box, an earphone and the like.