The invention relates to a low-cost high-performance rare-earth AB5 type hydrogen storage alloy and a preparation method thereof. The hydrogen storage alloy is shown as the following general formula: Ml(Ni1-x-y-wCoxMnyAlzMw)mNn, wherein x, y, z, w, m and n refer to molar ratios, and x is more than 0 and less than or equal to 0.1, y is more than 0 and less than or equal to 0.2, z is more than 0 and less than or equal to 0.2, w is more than or equal to 0 and less than or equal to 0.06, m is more than or equal to 4.8 and less than or equal to 5.5 and n is more than 0 and less than or equal to 0.1; Ml consists of La and at least one of the element group consisting of Ce, Pr, Nd, Sm, Gd, Dy, Mg, Ti and Zr, wherein La accounts for 30 to 90 weight percent and the La accounts for 10 to 30 weight percent of the alloy correspondingly; M is at least one of Cu, Fe, Si, Ge, Sn, Cr, Zn, B, V, W, Mo, Ta and Nb; and N is Ca and/or Y. The hydrogen storage alloy consists of a single phase or an Al-Mn-Ni-Co phase which does not exceed 2 weight percent and/or an RE-N-Ni precipitated phase. The alloy is prepared by adopting single-double roller rapid quenching or common casting technology, keeping the temperature at 1173-1273K for 4 to 12 hours for annealing treatment, and performing water, oil or gas quenching treatment. The alloy has high capacity and long service life; meanwhile, high-price Co in the alloy has low content, so the alloy has the advantage of low cost; and the recycling performance is good.