The invention provides an LED chip capable of improving external quantum efficiency. The LED chip comprises a DBR layer, a substrate, a buffer layer, a first semiconductor layer, an active layer, a second semiconductor layer, a transparent conductive layer, an N type electrode and a P type electrode, wherein the N type electrode and the P type electrode are both aluminum-based reflection electrodes, and the aluminum metal layer of the P type electrode is in direct contact with the transparent conductive layer to improve the reflectivity of a reflection electrode and a semiconductor interface.The invention further provides a preparation method of the LED chip capable of improving the external quantum efficiency. The method comprises the following steps: growing a complete LED structure epitaxial wafer on a substrate, and etching to form a semiconductor structure with a step inclined plane; manufacturing a current blocking layer and a transparent conductive layer comprising an AZO layer; preparing a P type electrode, an N type electrode and a passivation layer, and performing back plating of a DBR layer; and preparing the wafer into the LED chip device. According to the invention, the aluminum-based reflecting electrode is adopted, and the insertion layer metal between the P type electrode and the transparent conductive layer is canceled, so that the luminous efficiency of the LED chip is improved, and the external quantum efficiency of the LED chip is improved.