The invention discloses an epoxy modified water-soluble acrylic resin, and a preparation method and application thereof. The preparation method of the epoxy modified water-soluble acrylic resin comprises the following steps: adding organic solvent, methyl methacrylate, butyl acrylate, methacrylic acid, 2-hydroxyethyl acrylate, chain-transfer agent and initiator into a reaction kettle, and heating to react; and adding organic solvent, methyl methacrylate, butyl acrylate, unsaturated double-bond terminated epoxy resin, methacrylic acid, 2-hydroxyethyl acrylate, chain-transfer agent and initiator into a dropwise addition tank, uniformly stirring, dropwisely adding into the reaction kettle, keeping the temperature, cooling, and adding an amine neutralizer for neutralization, thereby obtaining the epoxy modified water-soluble acrylic resin. The epoxy resin is introduced to the chain segment of the water-soluble acrylic resin by chemical modification, so that the epoxy modified water-soluble acrylic resin has better comprehensive properties, and better satisfies the requirements of customers.