A method for preparing a light emitting diode (LED) with a vertical structure adopting an all optical film system. The method comprises the following steps: an N-type contact layer, an active area and a P-type contact layer are epitaxially grown in turn on a substrate; a device is isolated after etching; an ITO optical film is prepared on the P-type contact layer; an optical highly-reflective film is prepared on the ITO optical film, part area of which is exposed; metal films are prepared on the optical highly-reflective film and the exposed ITO optical film area so as to form a P electrode of the device; the insulated substrate is removed to expose the gallium nitride N-type contact layer; an ITO conductive optical reflection-reducing film is prepared on the surface of the gallium nitride N-type contact layer, and then undergoes surface roughening treatment; a metal electrode is prepared on the ITO conductive optical reflection-reducing film; a dielectric film is deposited on the surface of a chip so as to carry out surface passivation protection; and finally, the dielectric film in the metal electrode area is removed so as to carry out pressure welding and packaging, thereby completing the preparation of the device.