The invention discloses a modified diatomite lake mud building material for interior wall decoration and a preparation method, and belongs to the technical field of building materials. The building material comprises distilled water, modified diatomite lake mud powder, activated shell powder, modified mineral water-holding densifier, anatase nano titanium dioxide, modified kaolin powder, ground calcium carbonate, quicklime powder, modified acrylate emulsion, granodiorite powder, hydroxyethyl methylcellulose, pigment and nano-TiO2 modified chitosan antibacterial mildew preventive. The building material is formed through scientific compatibility of green and environment-friendly materials, is safe, stable, poisonless and free from volatile harmful gases, can adsorb and purify the harmful gases such as formaldehyde and benzene, regulate indoor humidify, enhance textures of coated wall surfaces, insulate sound and heat, remove peculiar smell, prevent fire and retard inflaming, and also has the advantages of low cost, non-existence of cracking and peeling, bacterium resistance, mildew prevention, easiness in repair and the like.