The invention relates to an iron-based magnetostrictive alloy wire and a production method thereof. The molecular formula of the alloy is Fe1-x-yMxNyREz, M is one or more of Ga, In, Cr, Ni and Co, N is one or more of Al, Mn, V, Nb, Ti and Zr, RE is one or more of La, Ce, Pr, Nb, Tb, Dy, Y and Sc, wherein x is equal to 15 percent to 60 percent, y is equal to 0 percent to 10 percent, z is equal to 0 to 1.0, and the rest is Fe. The technical point is as follows: according to the alloy composition requirement, an ingot casting is smelted, hammer cogging is carried out, and after a wire rod with the diameter of 8mm is rolled, the wire rod is cold-drawn into the alloy wire. The size of the alloy wire produced by the method can be adjusted within a wide range, consequently, a sensor can be conveniently designed, and the magnetostrictive material can be used in more fields. The magnetostriction coefficient of the iron-based magnetostrictive material can reach 367ppm under a 4000Oe applied magnetic field.