The invention provides a chitosan activated clay composite material as well as a preparation method and decolorization application thereof. The preparation method comprises the following steps: dissolving chitosan powder in a glacial acetic acid aqueous solution to obtain a chitosan solution, then dispersing activated clay in pure water to obtain an activated clay suspension, then successively adding a plasticizer glycerin, an activated clay suspension, a cross-linking agent glutaraldehyde into the solution while stirring to obtain a uniformly-mixed chitosan/activated clay mixed solution, andthen freezing and freeze-drying the mixed solution to finally obtain the chitosan activated clay composite material. The chitosan activated clay composite material provided by the application has an excellent decolorization adsorption effect and a stable structure, and can effectively remove colored substances in deteriorated transformer oil, and an adsorbed system is easy to separate and is unlikely to cause secondary pollution to the oil.