The invention provides a distribution transformer design method based on manufacturing cost and operation environments. The method includes the first step that design schemes of to-be-designed distribution transformers are configured, the second step that operation environment requirements of the to-be-designed distribution transformer are determined, the third step that manufacturing cost C and performance indexes of the distribution transformer in the each design scheme are set, the fourth step that life cycle cost of the to-be-designed distribution transformers is compared with those of different types of distribution transformers, and the manufacturing cost C of the to-be-designed distribution transformers is limited. Compared with the prior art, according to the distribution transformer design method, by constructing a life cycle cost model of the distribution transformers and analyzing cost structures of all parts of the distribution transformers, sensitivity analysis is conducted on cost of all parts, increase of the life cycle cost of the to-be-designed distribution transformers is limited according to manufacturing cost of distribution transformers with the same overload capacity, and accordingly technical economical efficiency of the to-be-designed distribution transformers is improved.