The invention provides a rare earth flame resistance magnesium alloy and a preparation method thereof and relates to a magnesium-based alloy adopting rare earth metal as main component; and the atom percentage of the elements of the alloy is Mg96.0-98.19Y0.31-0.5Dy1.5-3.5. The preparation method comprises the following steps: first weighting three raw materials, namely pure magnesium, Mg-Y preliminary alloy containing 29.05% of Y and Mg-Dy preliminary alloy containing 29.025% of Dy according to the weight percent of the elements of the alloy, heating and smelting at 600-720 DEG C, intermittently injecting mixed protective gases containing 99.5vol.% of CO2 and 0.5vol.% of SF6 at about 600 DEG C, 650 DEG C and 720 DEG C, and finally casting to obtain Mg96.0-98.19Y0.31-0.5Dy1.5-3.5 flame resistance magnesium alloy product. The product has very high purity and higher flame resistance property.