The advantage of preferential upward continuation method lies in the fact that, when it is used for upward continuation, the low frequent signal is not attenuated excessively and it can retain as much information on geological features as possible, so it can accurately separate regional anomaly and local anomaly. However, in conventional methods both high and low frequent signals are attenuated simultaneously for upward continuation. The preferential upward continuation breaks up the restrictions of the conventional upward continuation. So the preferential upward continuation is a method that has the capability for self-adaptive qualitative enhancing and separating the aeromagnetic anomalies. In this paper, the aeromagnetic anomaly in Anshan-Benxi area was processed using the preferential upward continuation to realize the enhancement and separation of the anomaly in the deep source field, with a good effect obtained. Furthermore, the authors studied 3D inversion of typical Xianshan iron ore deposit and inferred the distribution of underground lithologic boundaries and the spatial morphology of the Xianshan iron ore deposit. The results provide an important reference for the qualitative interpretation of the aeromagnetic anomaly.