The invention provides municipal sludge expanded ceramsite and a preparation method thereof. The municipal sludge expanded ceramsite is prepared from the following materials by mass percentage: 20% to 45% of municipal sludge, 50% to 70% of shale, tailings or clay, 1% to 5% of organic matter and 1% to 5% of iron powder, wherein, the tailings is one of pyrite tailings, gold tailings, lead-zinc tailings and aluminum tailings; and the organic matter is sawdust. The preparation method comprises the following steps: feeding the shale, tailings or clay into a crusher, and carrying out the screening treatment; adding and mixing the municipal sludge, the organic matter and the iron powder, feeding into an ageing silo and stirring; then, feeding into a granulating machine, granulating and calcinating in a rotary kiln; and finally, cooling and stacking the calcinated ceramsite by classification. By using a great amount of municipal sludge, the invention is resource-saving and environment-friendly; compared with the original cost, the overall cost of a building is reduced by 5% to 10%; and the prepared expanded ceramsite has the advantages of light weight, fire resistance, sound absorption, good heat insulating and preserving performance, simple process and low cost, so that the invention is suitable for industrialized production.