(S)-4-hydroxy-2-oxo-1-pyrrolidine crystal form III (called crystal form III of (S) -oxiracetam for short) has diffraction peaks at diffraction angles 2θ, wherein the diffraction angles 2θ are equal to 10.54, 13.70, 14.44, 15.60, 17.12, 18.88, 19.24, 20.66, 20.84, 21.18, 21.82, 22.94, 23.24, 24.88, 27.20, 27.48, 28.24, 30.46, 30.80, 31.52, 32.00, 32.34, 32.90, 33.20, 34.40, 34.62, 37.30, 37.50, 38.28, 38.96, and 40.02°. The (S)-oxiracetam crystal form III of the present invention has an obvious effect on memory dysfunction, is dissolved in water fast, has high bioavailability, and can be used to prepare various pharmaceutical compositions. The (S)-oxiracetam crystal form III obtained by using the preparation method of the present invention is high in purity. The preparation method of the present invention is performed in a mild condition, is easy in operation, introduces less impurities, has desirable reproducibility, is easily controlled during production, and is applicable to industrial production.