An environmentally friendly water-based paint capable of removing formaldehyde through reacting comprises 1 to 10 weight parts of ethylideneimine ketone, 30 to 45 weight parts of polymer emulsion, 0.5 to 2.0 weight parts of a film forming additive, 0.1 to 0.5 weight parts of an antifoaming agent, 20 to 40 weight parts of filling materials, 15 to 30 weight parts of distilled water and 2 to 5 parts of other additives. The preparation method of the environmentally friendly water-based paint comprises successively adding a wetting agent, a dispersant, parts of the antifoaming agent and the filling materials into the distilled water and then grinding to disperse to get slurry ; preparing a 30 % ethylideneimine ketone solution which is then added into the polymer emulsion; and successively adding the slurry, the film forming additive, the remaining antifoaming agent, a mildew preventor, an antifreeze, a levelling agent and a thickening agent into the polymer emulsion, adjusting a PH value to 8.0 to 9.5, and finally carrying out constant volume operation with the distilled water. The paint can effectively inhibit release of the formaldehyde in water-based paints, and has advantages of low production cost, simple process and suitability for popularizing.