The invention discloses a modified magnetic catalyst. The modified magnetic catalyst comprises the following components by weight percent: 50%-90% of activated carbon, 5%-40% of Fe3O4 and the balance of soluble sulfide or bromide. The invention also discloses a preparation method and an application of the modified magnetic catalyst. The preparation method comprises the following steps: activated carbon with a large surface area is used and the hydrothermal method is adopted to prepare magnetic activated carbon, and then sulfur-loading or bromine-loading modification is performed on the magnetic activated carbon to prepare the modified magnetic activated carbon used for the demercuration of flue gas. The modified magnetic activated carbon prepared by the preparation method in the invention can be reused, thus the dosage of activated carbon can be greatly reduced; mercury is absorbed and enriched by the reused activated carbon; and when mercury in activated carbon reaches the refinement concentration, the refinement of mercury is performed. Therefore, a way of completely removing and recycling mercury is opened up.