Suspension bed hydrocracking technology and water soluble catalyst were used for upgrading of atmospheric residue from Dagang oil field. The relations among metal composition of the catalyst, reaction conditions, coke forming and conversion were systematically investigated. After optimization, the yields of AGO and VGO are 21.2% and 47.7% respectively from processing atmospheric residue under the condition of 430 ℃, 1.0 h-1 space velocity, 7 MPa and catalyst addition amount with 300 μg/g in once through operation, toluene insolubles yield level of 1.4%, a total conversion of AR which has a boiling point lower than 524 ℃ can reach above 80%.The constitutes of catalyst and reaction temperature are the main factors which affect the conversion of materials and coke formation, the conversion of materials and coke formation increase with the extend of reaction time, the conversion has little change and the trend of coke formation decreases with the increase of reaction pressure. The recycling can improve the conversion of residue but the degree is too small.