The invention relates to a grafting reaction-type water-retaining slow-release nitrogen, phosphorus and potassium fertilizer and a preparation method thereof. The preparation method comprises the following steps: adding a potassium dihydrogen phosphate solution and industrial urea into a reactor to prepare a potassium biurea phosphate solution, adding an initiator ammonium persulfate into acrylic acid, sodium acrylate and N, N'-methylene bisacrylamide at 0 DEG C and in a nitrogen atmosphere, then adding the potassium diurea phosphate solution, and enabling reaction for 20-90 min; performing vacuum drying at 80 DEG C, and grinding to prepare the grafting reaction-type water-retaining slow-release nitrogen, phosphorus and potassium fertilizer. In the grafting reaction-type water-retaining slow-release nitrogen, phosphorus and potassium fertilizer, urea and potassium dihydrogen phosphate are grafted onto branched chains of a water-retaining polymer, so that the number of water-retaining groups of a water-retaining agent is increased and the water-retaining performance can be effectively improved; nitrogen, phosphorus and potassium nutrients on grafted chains can break away from a main chain of the water-retaining polymer through hydrolysis, then penetrate through a colloidal network structure and are released so as to achieve slow-release functions of the nitrogen, phosphorus, potassium nutrients.