The invention discloses a preparation method of modified phenolic resin and an application thereof. The preparation method comprises the following steps of: firstly carrying out polycondensation on phenol, formaldehyde and urea under the conditions of a basic catalyst, the temperature of 85 to 95 DEG C and the pH value of 8 to 9, and regulating the pH value to 6.5 to 7.0 after the reaction is ended; then carrying out vacuum dehydration on polycondensation products under the vacuum condition, enabling the solid content to be 80 to 85 percent by weight, cooling to the room temperature, and regulating the viscosity to be 2.0 to 3.0Pa.s; and finally adding a surfactant and a foaming agent, stirring, discharging and packaging. Furthermore, a composite curing agent is also necessary to be mixed with the modified phenolic resin when in use according to the mass ratio of 100: 10 to 50. The prepared modified phenolic resin has the advantages of light weight, low toxicity, difficult combustion, low smoke, heat insulation, high temperature and low temperature resistance, and the like, can be widely used in the fields of building, transportation, shipping, chemical engineering, petroleum, and the like and has a certain social and economic benefits.