Nitration-oxidation lignosulfonate (NOLS) was prepared using lignosulfonate (LS) as raw material. The product was characterized by FT-IR spectroscopy (FTIR) and scanning electron microscope (SEM). The performance as a drilling fluid additive was evaluated with regard to rheology, filtration and temperature resistance. The results showed that NOLS can improve the viscosity under room temperature, decrease the viscosity, reduce the filtration under high temperature, and inhibit the swelling of clay more effectively than lignosulfonate, which displays good temperature resistance. Environmental study addressed the effect of NOLS on wheat seedling, which showed that 0.3% NOLS solution benefits the growth of wheat seedling similar to that of 1% commercial plant nutrients solution. So NOLS may be used as sustained release nitrogen fertilizer in agriculture after the waste drilling disposal.