The invention discloses insulating dry powder mortar which is made from portland cement, pulverized fuel ash and/or slag powder, organic polymer emulsion powder, flame-retardant polystyrene foam particles, thermal insulating aggregate, composite fiber, water resisting agent and admixture. The insulating dry powder mortar has the advantages of light volume weight, low thermal conductivity, comprehensive utilization of waste material, environmental protection, resource saving, cracking resistance, ageing resistance, strong cohesive force, favorable workability and construction performance, convenient use, waterproofness, permeation resistance, high compression strength, convenient storage and transportation, no environmental pollution, and the like and can be widely used for preserving heat in the internal wall and the external wall of a building and other special engineering.