The invention provides a high-rolling-capacity magnesium-rare earth alloy and a preparation method thereof. The magnesium-rare earth alloy comprises the following elements in percentage by mass: 4.8-5.2% of Gd, 2.3-2.8% of Y, 1.9-2.3% of Zn, 0.8-1.2% of Al, inevitable impurities of Fe, Cu, Ni and Si less than 0.03%, and the balance of Mg. The preparation method comprises the following steps: pure Mg, pure Zn, pure Al, a Mg-Gd intermediate alloy and a Mg-Y intermediate alloy are used as raw materials, are molten for stirring, refining and slagging, are cooled after insulation and standing, and are cast as a magnesium alloy cast blank or magnesium alloy ingot; and the magnesium alloy cast blank or magnesium alloy ingot is hotly rolled on a rolling mill to prepare the magnesium-rare earth alloy after homogenization. The novel low-cost and high-rolling-capacity magnesium-rare earth alloy, provided by the invention, is excellent in comprehensive mechanical performance, and can serve as a high-strength structural material for use.