The invention provides oily grinding liquid and a preparation method thereof. The oilness grinding liquid is mainly prepared from the following components: diamond micropowder, matrix oil, a surfactant, a wetting dispersant, a suspension concentrate, a lubricant, an antiwear additive and a viscosity modifier. The preparation method comprises the following steps: after performing ultrasonic stirring on the diamond micropowder, the surfactant and the matrix oil for 5-10min, adding the wetting dispersant and the suspension concentrate, and performing ultrasonic stirring for 5-10min; and then adding the lubricant and the antiwear additive, performing ultrasonic stirring for 5-10min, determining viscosity, and stirring for a period of time after adding a viscosity reducer or a thickener according to the actual viscosity to obtain the oily grinding liquid. When being applied to sapphire substrate precision machining, the oily grinding liquid provided by the invention has the outstanding features of high grinding rate, controllable grinding disc temperature and small TTV, can improve the grinding processing efficiency, lowers the processing cost, is small in smell and liable to clean andis green and environmentally friendly.