A preparation method of Yttrium oxide dispersed and strengthened titanium alloy powders. The method includes following steps: mixing alloying elements according to alloy element ratios of: 0.1 wt % to 1.0 wt % Y, 5.5 wt % to 6.8 wt % Al, 3.5 wt % to 4.5 wt % V, Ti as balance, preparing alloy ingots by vacuum smelting process, and performing forging and rolling process; performing mechanical treatment for forged and rolled alloy ingots, to obtain alloy rods that meet size requirement of plasma rotating electrode process; preparing titanium alloy powders based on alloy rods by the plasma rotating electrode process; preparing parameters are: rotating speed of the alloy rods is 25000 r/min to 35000 r/min, a feeding speed of the alloy rods is 1.0 mm/s to 2.0 mm/s, power of the plasma gun is 60 kw to 140 kw, a temperature of the inert gas is 200° C. to 400° C., oxygen content of atomization chamber not greater than 100 ppm.