The invention discloses a grass fiber bio-separation compound preparation and an application method thereof. The grass fiber bio-separation compound preparation comprises bacteria components and enzyme components, wherein the bacteria components comprise white rot fungi and zymogeneous bacteria, and the enzyme components comprise cellulose, xylanase, laccase, protease, thermostable amylase, ligninase and pectinase. According to the grass fiber bio-separation compound preparation, straw serving as the raw material is treated with a biological method, a biological cycle liquid and a waste cooking liquid produced in the treatment process can be recycled without drainage, and lignin can be extracted; and besides, according to the method, straw does not require cutting and dust removal, and the cooking does not require high temperature and high pressure, so that a large quantity of manpower and electric charges is omitted, and the preparation and the method are suitable for a plurality of raw materials such as wheat straw, straw, cotton stalks, reeds and the like, can be used for producing a paddle board, molded pulp, various types packaging paper, office paper and household paper and have the advantages of low cost and environment protection.