The present invention discloses a water-based cutting fluid for vermicular cast iron processing, and a dilution solution thereof. The water based cutting fluid comprises 3-10% of an anti-rust additive, 4-10% of fatty acid amide, 2-3% of organic amine, 3-10% of long-chain fatty acid, 2-5% of fatty alcohol polyoxyethylene ether, 5-8% of petroleum sodium sulfonate, 1-5% of a coupling agent, 10-15% of an extreme pressure additive, 15-20% of a synthetic ester, 1-2% of a sterilization agent, 0.5-1.0% of an anti-forming agent, and 32-45% of water, wherein the anti-rust additive is a boric acid anti-rust additive and dicarboxylic acid, and the coupling agent is a fatty alcohol and/or aliphatic ether. The water-based cutting fluid of the present invention has characteristics of good lubrication performance, good cooling performance, good anti-rust property, no chlorine, diamine, nitrite and other nitro compounds, no environmental pollution, no irritating odor, easy cutting, easy powder settlement, and effective cutter service life prolonging.