The invention discloses a multifunctional organic fertilizer and a preparation method thereof. The multifunctional organic fertilizer comprises the following raw materials in parts by weight: 30-50 parts of silkworm litter, 3-8 parts of mulberry twig, 2-8 parts of pond sludge, 10-30 parts of lignite, 5-20 parts of grass carbon, 5-20 parts of rice bran, 3-10 parts of saccharomycete, 3-10 parts of Bacillus licheniformis and 50-300 parts of purified water. The organic fertilizer adopts a biological fermentation technology, and has the advantages of multiple functions, simple production process, low production cost, high fertilizer effect and quick action; the finished product contains a large amount of Bacillus licheniformis, Bacillus subtilis, Bacillus mucilaginosus, Bacillus megaterium, Bacillus amyloliquefaciens and actinomycete, has strong aerobic fermentation and decomposition capabilities, activates microorganism propagation, and can loosen the soil, enhance the soil productivity and adsorb residual heavy metal and other harmful toxin in the soil; and the organic fertilizer can be applied to various vegetables, fruit trees, Chinese medicinal herbs, tea, melons, fruits and the like.