The invention provides a high-toughness heat-resistant Mg-Gd alloy suitable for gravity casting and a preparation method thereof. The alloy comprises the following chemical components of, in percentage, 4.0-10.0% of Gd, 2.0-6.0% of Zn, 0.5-1.2% of Al, 0.1-0.3% of Mn, 0.01-0.08% of M, and the balance Mg, wherein the M is one or two elements of Ti and B; the preparation method comprises the following steps that (1) burdening is performed according to a Mg-Gd alloy component; (2) an industrial pure magnesium ingot is melted; (3) heating is performed to 700 DEG C, and industrial pure zinc, an Mg-Gd and Mg-Mn intermediate alloy are melted; (4) heating is performed to 730 DEG C, after an industrial pure aluminum ingot, Al-Ti, Al-Ti-B and Al-B intermediate alloys added are all melted, refining isperformed to obtain a magnesium alloy melt; (5) gravity casting is performed; and (6) secondary solid solution and artificial aging treatment are performed. According to the high-toughness heat-resistant Mg-Gd alloy and the preparation method, after the alloy is subjected to the gravity casting, the secondary solid solution treatment and the artificial aging heat treatment, the tensile strength at room temperature is 300 MPa, the elongation percentage is 15%, the high-temperature tensile strength at 200 DEG C is 218 MPa, the elongation percentage is 20%, and the high-end requirement for lightweight development in the industries of aerospace, automobiles, telecommunication and the like is met.