The invention discloses water-in-water multi-color water paint and a preparation method thereof, and relates to the technical field of paint compositions. The water-in-water multi-color water paint comprises basic paint, protection glue and varnish, wherein the weight ratio of the basic paint to the protection glue to the varnish is 40-60 to 30-50 to 20-50. The basic paint comprises, by weight, 45%-60% of water, 0.1%-0.3% of defoaming agent, 1%-2% of nonionic polymer, 10%-14% of silicic acid, 1%-4% of titanium dioxide, 0.1%-0.3% of sterilization fungicide and 20%-35% of water-based elastic acrylic emulsion. The protection glue comprises, by weight, 92%-94% of water and 8%-6% of DAD AP525. The varnish comprises, by weight, 28%-42% of water, 30%-60% of water-based silicone acrylic emulsion, 1%-6% of coalescing agent, 0.5%-2.5% of thickening agent and 10%-20% of modified bentonite. The multi-color water paint is environmentally friendly in water property, good in stability, high in stone simulation degree, high in adhesive force, low in cost, convenient to construct, and flat and smooth in paint film.