The invention belongs to the technical field of polymer modification, and in particular discloses a preparation method of an epoxy-terminated polysulfide rubber. The preparation method comprises the steps that polysulfide rubber is reacted with an alkyl lithium reagent in advance, so that the thiol group in the polysulfide rubber is converted into a sulfur-lithium bond to obtain a sulfur-lithium polymer; and then the sulfur-lithium polymer and an epoxy organochlorine raw material are subjected to a termination reaction to obtain the epoxy-terminated polysulfide rubber. The invention also discloses a modified epoxy-terminated polysulfide rubber and the application of the product. In the preparation process of the epoxy-terminated polysulfide rubber of the present invention, the sulfur-lithium group formed by the reaction of the highly active alkyl lithium with the thiol group in the polysulfide rubber molecule is used to react with the epoxy organochlorine raw material, and the reactionbelongs to a homogeneous reaction, and has features of fast reaction rate, no side reaction and the like. The epoxy-terminated polysulfide rubber of the present invention has a tensile strength of not less than 3.0 Mpa, a relative elongation of not less than 320%, a hardness (Shore A) of 65, the glass transition temperature Tg of not more than -16 DEG C, and the permanent deformation of not morethan 40% after being crosslinked by using a small amount of amine.