The invention discloses an environment-friendly type flame retardant additive used for a soft PVC product, and a preparation method and an application thereof. The flame retardant additive is obtained by the following steps of performing high-speed emulsification dissociation on sepiolite in a weak acidic solution to prepare a single-fiber sepiolite sol; adding bismuth oxide particles in the sepiolite sol, heating for reaction, filtering, washing and drying to obtain bismuth oxide sepiolite composite fibers; and finally adding modifier in the bismuth oxide sepiolite composite fibers for modification. The prepared bismuth-containing sepiolite composite flame retardant is uniformly distributed in fiber diameter. The diameter of a single fiber can be smaller than 0.1 [mu]m; and bulk density is lower than 1.0 g/cm<3>. The flame retardant additive has high specific surface area, good flame retardant effect, can effectively lower smoke volume of the soft PVC product in a combustion process, and is an environment-friendly type flame retardant additive.