The invention discloses an environment-friendly coated slow release fertilizer containing biological bacteria and a preparation method thereof. The fertilizer is prepared from, by weight, 1-2 parts of yellow humic acid potassium, 10-20 parts of acrylic acid, 30-50 parts of sodium alginate solution, 0.5-1 part of biological fertilizer powder, 1-2 parts of ammonium peroxydisulfate, 3-6 parts of N,N'-methylenebis, 3-5 parts of active straw ash, 15-25 parts of poval, 4-7 parts of starch, 25-35 parts of urea, 8-15 parts of potassium hydrogen phosphate , 40-50 parts of calcium chloride solution and 50-100 parts of distilled water. The preparation method comprises the steps of adding a water retention agent into crosslinked fluid, and spraying the solution on a fertilizer inner core. The shortcoming that the water retention agent is prone to falling when directly adhering to the fertilizer inner core is overcome. The water retention effect of the fertilizer is obvious. At the same time, the crosslinked fluid can exert the function of increasing the water resistance of the fertilizer, at the same time, the environment-friendly coated slow release fertilizer is biologically degradable and environment-friendly, the introduction of biological bacteria can degenerate pesticide and fertilizer damage, and degrade heavy metal.