The invention discloses a water-retaining agent improving alfalfa drought tolerance and a preparation method thereof. The water-retaining agent comprises, by weight, 60-80 parts of starch-grafting acrylate particles, 20-30 parts of organic fertilizer particles, 5-10 parts of soil ameliorant particles and 15-20 parts of ceramsite. The organic fertilizer particles comprise 100-150 parts of livestock excrement, 30-50 parts of humic acid, 20-40 parts of straw, 40-60 parts of bagasse, 10-20 parts of peanut meal, 5-10 parts of sawdust and 5-10 parts of fishbone powder. The soil ameliorant particles comprise 0.25-0.3 part of ammonium molybdate, 0.1-0.2 part of potassium borohydride, 0.05-0.08 part of boronic acid, 0.05-0.08 part of borax, 0.1-0.2 part of ferrous sulfate, 0.3-0.4 part of ammonium ferrous sulfate, 1-2 parts of zinc sulfate, 0.05-0.1 part of manganese sulfate, 0.2-0.3 part of monopotassium phosphate, 0.2-0.4 part of sodium selenate and 5-8 parts of photosynthetic bacterium inoculants. The ceramsite is obtained by mixing and forging attapulgite, biological sludge, vermiculite powder and river bottom mud.