The invention provides an oxide thin film transistor and a preparation method thereof. The preparation method comprises the steps of: providing a substrate, and forming a first metal layer on the surface of the substrate; forming a gate and signal wires by adopting a first photomask preparation process; forming a gate insulating layer, an active layer and an etching barrier layer on the exposed surface of the substrate, the surface of the gate and the surface of the signal wires in sequence; exposing part of the signal wires by adopting a second photomask preparation process, and exposing a source region and a drain region of the active layer; forming a second metal layer, a first photoresist layer and a second photoresist layer on the surface of the substrate in sequence, wherein the first photoresist layer is an organic photoresist layer; forming a source and a drain by adopting a third photomask preparation process, and forming a transparent electrode, wherein the source is connected with the exposed region of the signal wires and the source region of the active layer, the drain is connected with the drain region of the active layer, the transparent electrode is connected with the drain, and the first photoresist layer is reserved in this step; and annealing, so that the first photoresist layer is melted to wrap the exposed surfaces of the source and the drain.