The invention discloses ring slot processing equipment and a design method thereof. A ring slot is used for installing a sealing ring for separating oil from water in cylinder holes of a cylinder body, wherein the ring slot processing equipment comprises a feeding mechanism, a positioning mechanism, a cutting mechanism and a shaft shell, and the feeding mechanism, the positioning mechanism and the cutting mechanism are connected to the shaft shell. The positioning mechanism comprises a support cushion, an upper positioning ring and a front end cover, the supporting cushion is connected with the top surface of the cylinder body, the upper positioning ring is connected and positioned according to the upper cylinder hole of the cylinder body, and the front end cover is connected and positioned according to the lower cylinder hole of the cylinder body. The invention has the advantages of short processing feeding line, high processing efficiency and low processing cost; and the ring slot and the cylinder holes have preset coaxiality through designing the simple positioning rings, thus the processing accuracy can be ensured.