The present invention relates to a magnesium alloy having high ductility and high toughness, and a preparation method thereof, and more specifically, to: a magnesium alloy having high ductility and high toughness, comprising 1.0-3.5 wt% of tin (Sn), 0.05-3.0 wt% of zinc (Zn), and the balance of magnesium and inevitable impurities; and a preparation method thereof. According to the present invention, the magnesium alloy is prepared by adding zinc, and optionally, one or more elements selected from aluminum, manganese and rare earth elements in a specific content ratio to a magnesium alloy capable of precipitation strengthening containing a small amount of tin so as to form a small amount of fine precipitates, thereby simultaneously minimizing a decrease in ductility of a material due to excessive precipitates and strengthening precipitation. Therefore, the magnesium alloy has prominent ductility and toughness compared with an extrusion material prepared from a conventional commercial magnesium alloy, and thus can be applied to a whole industry such as transportation equipment and the like.