The invention discloses rare earth-magnesium-based hydrogen storage alloy and a preparation method thereof. The La-Mg hydrogen storage alloy which has the micron-scale particle size and is modified through Ni-Al alloy nanocrystalline doping is prepared by means of a low-temperature vacuum induction melting technique, a multi-target magnetic-control sputtering and doping technique, an annealing treatment technique and the like. It is indicated through results that the hydrogen absorption and desorption rate of the Ni-Al@La-Mg hydrogen storage alloy prepared through the method is obviously higher than that of La-Mg matrix alloy particles, and the Ni-Al@La-Mg hydrogen storage alloy has good activation performance, capacity retentivity and cycling stability and is greatly improved in the aspect of hydrogen desorption. It is indicated that a trace metal alloy nanocrystalline doping catalysis technique has good application prospects in the aspect of improving the performance of the hydrogen storage alloy.