The invention discloses a preparation method of cardanol modified phenolic resin. The method comprises steps that: 16 to 24 parts of phenol by weight, 5 to 9 parts of cardanol by weight and 10 to 14 parts of formaldehyde by weight are well-mixed in a reaction vessel; 2600 to 2700 parts of sulfuric acid by weight are added to the mixture, wherein the weight percentage concentration of sulfuric acid is 2%; the mixture is heated to a reflux state, and is subject to a reaction for 40 to 60min; the mixture is evacuated and the state is maintained for 40 to 50min, such that the mixture is dehydrated; the dehydrated mixture is cooled to a temperature of 65 DEG C; 4.6 to 8.6 parts of formaldehyde by weight is added to the mixture, and the mixture is heated to a reflux state; the temperature of the mixture is maintained for 2 hours, and the mixture is evacuated and dehydrated until transparent; the mixture is cooled to a temperature of 65 DEG C; 13 to 17 parts of toluene by weight, 13 to 17 parts of ethanol by weight and 20 to 25 parts of epoxy 6101# is added to the mixture, wherein the weight percentage concentration of ethanol is 95%; the mixture is stirred for 20 to 40min; aluminum acetylacetonate is added to the mixture for regulating a gel time to 90-120s/180 DEG C; when the gel time reaches 90-120s/180 DEG C, 3 to 7 parts of magnesium hydroxide by weight is added to the mixture; the mixture is well-mixed, and the obtained material is discharged. According to the invention, tung oil is completely replaced by cheap cardanol, and cardanol is subject to a reaction with formaldehyde, such that cardanol modified phenolic resin is synthesized. Therefore, cost is further reduced, and the heat resistance and cold punching performance of the material are improved.