The invention discloses an anti-caking water-retaining compound fertilizer and a preparation method thereof. The anti-caking water-retaining compound fertilizer comprises, by weight parts, 20-22 parts of urea, 10-12 parts of expanded perlite, 3-5 parts of EM fungicide, 20-25 parts of weathered coal, 13-15 parts of sodium humic acid, 12-14 parts of monopotassium phosphate, 10-11 parts of chitosan, 2-3 parts of polyacrylamide, 2-3 parts of ferric ammonium citrate, 5-8 parts of magnesium sulfate, 4-6 parts of activated carbon, 6-8 parts of Chinese herb residues, 8-10 parts of plant ash, 6-8 parts of pine needle mulch, 6-9 parts of polylactic acid, 8-12 parts of polyvinyl alcohol, 0.5-1 part of N,N-methylene-bisacrylamide and an appropriate amount of water. According to the anti-caking water-retaining compound fertilizer, the functional components including the plant ash, the pine needle mulch, the weathered coal and the activated carbon are added, fertilizer particle pores are added, and the particle stability is improved, so that the anti-caking effect of the fertilizer is good; mutual adhesion and caking between fertilizer particles can be avoided during use, and thus the fertilizer efficiency is guaranteed.