The invention provides functional cigarette paper and a preparation method. The functional cigarette paper comprises common cigarette paper prepared by using a paper making process, and the surface of the common cigarette paper is sprayed or dip-coated with a molecular capsulation material layer capable of reducing the contents of harmful substance, such as carbon monoxide, nitrosamine and the like in cigarette smoke. The preparation method comprises following steps of: finishing making of cigarette paper on a paper making machine, introducing a spraying device at the back of a combustion adjusting agent feed point of the paper making machine, preparing a molecular capsulation material into a molecular capsulation adsorbent solution, uniformly spraying the solution on the cigarette paper, and drying by a drying tank; or after finishing the making of the cigarette paper, preparing the molecular capsulation material into a molecular capsulation adsorbent alcohol solution, and uniformly dip-coating the solution to the cigarette paper on a coating machine, and then drying through a low-temperature drying cylinder until the alcohol fully volatilizes; and the addition amount of the molecular capsulation absorbing agent accounts for 1-20% of the mass percentage of the weight of the cigarette paper. The preparation method has the characteristics of simple molecular capsulation process, convenience for addition of the absorbing agent, and capability of reducing the content of harmful substances, such as carbon monoxide, nitrosamine and the like, in the cigarette smoke.