The invention belongs to the technical field of magnesium-lithium alloys, and particularly relates to a high-ductility soluble magnesium-lithium alloy and a preparation method and application thereof. Aiming at the problems of low ductility, incomplete dissolution and the like of a packing tool in fracturing transformation construction of an oil and gas field, the high-ductility soluble magnesium-lithium alloy is obtained through alloy component design and by adopting the processes of vacuum casting, low-temperature severe plastic deformation, heat treatment and the like, and the alloy is prepared from the following components in percentage by mass: 9.0-12.0% of Li, 0-2.5% of Al, 0.1-1.0% of Zn, 0.1-1.0% of Ni, 0.2-1.0% of Cu, less than or equal to 1.0% of RE, and the balance of Mg. The tensile strength of the prepared magnesium-lithium alloy is not lower than 120 MPa, the yield strength is not lower than 90 MPa, the ductility is not lower than 45%, and the magnesium-lithium alloy can be used for machining and preparing high-plasticity soluble downhole tools used in the oil and gas field fracturing process, such as all-metal full-bore soluble bridge plugs, sealing rings or sealing rings.