The invention relates to a heavy oil catalytic cracking catalyst with high light oil yield and a preparation method thereof. The catalyst contains 2-50 wt% of a magnesium modified ultrastable rare earth Y-type molecular sieve, 0.5-30 wt% of one or several other molecular sieves, 0.5-70 wt% of clay, 1-65 wt% of a refractory inorganic oxide and 0.01-12.5 wt% of rare earth oxide. The magnesium modified ultrastable rare earth Y-type molecular sieve is prepared from a raw material NaY molecular sieve through rare earth exchange, dispersing pre-exchange, magnesium salt exchange modification, ammonium exchange for reducing sodium, and ''two exchanges and two roasting''. The catalyst provided by the invention has characteristics of strong heavy oil conversion ability and high light oil yield.