The invention discloses a lead-free free-cutting aluminum-brass alloy and a manufacturing method thereof. The alloy comprises the following components by weight percentage: 57.0 to 63.0 percent of Cu, 0.3 to 0.7 percent of Al, 0.1 to 0.5 percent of Bi, 0.2 to 0.4 percent of Sn, 0.02 to 0.5 percent of Si, 0.01 to 0.3 percent of P, selectively added at least two elements of magnesium, boron, rare-earth metal and zirconium, and the balance being zinc and inevitable impurities, wherein content of the selectively added elements is respectively as follows: 0.01 to 0.15 percent of Mg, 0.01 to 0.05 percent of Zr, 0.001 to 0.05 percent of Re and 0.0016 to 0.0020 percent of B. The alloy has the advantages of excellent casting, welding, cutting and corrosion resisting properties, is suitable for low-pressure casting, gravity casting, horizontal continuous casting, forging and extruding, has metallic raw material cost lower than that of bismuth-brass, is suitable for parts and other structural components required by a drinking water supply system, and is a novel environment-friendly free-cutting aluminum-brass alloy.