Provided is a phosphorus-containing ultrastable Y-type rare earth (RE) molecular sieve and the preparation method thereof. The method is: based on NaY molecular sieve as a raw material, obtaining “one-exchange one-roast” RE-Na Y-type molecular sieve through the steps of exchanging with RE, pre-exchanging with dispersing, and the first calcination; and then performing ammonium salt exchange, phosphorus modification, and the second calcination on the “one-exchange one-roast” RE-Na Y-type molecular sieve, wherein the sequence of the RE exchange and the pre-exchange with dispersing is unlimited, and the sequence of the ammonium salt exchange and the phosphorus modification is unlimited as well. The obtained molecular sieve contains RE oxide 1-20 wt %, phosphorus 0.1-5 wt %, and sodium oxide no more than 1.2 wt %, and has a crystallization degree of 51-69% and a lattice parameter of 2.449-2.469 nm. Heavy oil conversion rate can be increased by using the molecular sieve as an active component in a catalytic cracking catalyst.