The invention discloses a water-based ink thermal transfer ribbon which comprises a base, a release layer, an ink layer and a heat resistant coating, wherein one side of the base is coated with the release layer, the outer side of the release layer is coated with the ink layer, and the other side of the base is coated with the heat resistant coating; the ink layer is prepared from the following raw materials in parts by weight: 14-17 parts of waterborne polyurethane resin, 10-15 parts of epoxy resin, 18-23 parts of acrylic resin, 15-20 parts of carbon black, 8-12 parts of copper chromite black, 22-26 parts of kaolin, 9-13 parts of quartz powder, 2-5 parts of diatomite, 5-8 parts of polyethylene wax, 0.7-1.5 parts of polysiloxane defoaming agents and 0.5-1.0 part of chitosan. The invention further discloses a preparation method of the water-based ink thermal transfer ribbon. The prepared thermal transfer ribbon is free from toxic solvents such as methylbenzene and butanone, operating environments can be favorably improved, health of workers is ensured, and environmental protection requirements are met.