The invention discloses modified diatomite thermal insulation mortar and a preparation method thereof. The mortar is prepared from the following raw materials in parts by weight: 80 to 100 parts of cement, 30 to 50 parts of modified diatomite, 15 to 25 parts of quartz sand, 10 to 20 parts of lime paste, 10 to 20 parts of alumina fiber, 8 to 12 parts of aerated aluminite powder, 5 to 15 parts of floating bead, 10 to 20 parts of phillipsite, 6 to 12 parts of mullite, 6 to10 parts of iron oxide powder, 4 to 8 parts of styrene-acrylic emulsion and 1 to 5 parts of auxiliary agent. The preparation method of the modified diatomite thermal insulation mortar comprises the following steps: firstly, crushing and grinding the quartz sand, the lime paste, the aerated aluminite powder, the floating bead, the phillipsite, the mullite and the iron oxide powder to obtain powder; secondly, mixing the cement, the alumina fiber and the styrene-acrylic emulsion with the powder, and adding the auxiliary agent to obtain slurry; finally, uniformly mixing the slurry. The thermal insulation mortar disclosed by the invention has the advantages of high mechanical strength, good insulating and soundproofing properties, low dry density of products, wide sources of raw materials, low cost and simple production process, thus the thermal insulation mortar has a positive impact on promoting the development of energy-saving and environmental-friendly building materials.