A polymer microsphere insulation mortar contains the following raw material by weight: the inorganic binder 15-30, lightweight aggregate 20-50, polymer microsphere 5-30, hollow fiber 0.5-3 and dispersible emulsion powder 8-20 and the method includes: fully mixing the raw material by an adding sequence of inorganic cementitious material, hollow fiber, polymer microsphere, dispersible emulsion powder and lightweight aggregate to obtain a mixture, and then blending the mixture with water to obtain a paste shape. The mortar is commonly characterized in both the thermal resistance material and the heat capacity material with high coefficient of the thermal storage, which greatly stabilizes the temperature of the insulation. The high binding force and the overall strength of the mortar and the wall substantially improve the performance of tensile, crack resistance and anti-fracture. A good barrier layer is formed in the middle of the mortar material through a mutual gradation among cement, lightweight aggregate, hollow fiber and polymer materials according to particle size, thereby reducing the hot and cold bridge in the mortar and further improving the thermal insulation performance.