A kind of hydrogen sensing technologic solution is proposed based on optical fiber micromachining. The femtosecond laser with 800 nm wavelength is used to fabricate a Mach-Zehnder (M-Z) interference cavity in single-mode optical fiber, and the palladium(Pd) film is deposited in the M-Z interference cavity by magnetron sputtering processing to make novel optical fiber hydrogen gas sensor. The effect of micromachining process on microcavity interference is analyzed. The resolution of the transmission spectrum is improved by choosing the right processing parameters and the follow-up processing of the cavity. The response to hydrogen of M-Z interference sensor is experimentally studied with the cavity length of 40 μm, the thickness of Pd film of 36 nm and 110 nm respectively. The results show that M-Z interference sensor with Pd film is sensive to hydrogen of different concentrations. The transmission spectrum will offset toward the direction of long wavelength along with the increase of hydrogen concentration, and the response to hydrogen of sensor with 110 nm Pd film is more sensitive than 36 nm Pd film.