To overcome the shortcoming of traditional fast Fourier spectral analysis method that it can′t be applied to the nonstationary signal and can not achieve precise measurement of the micro-displacement variation based on all-fiber laser interference, a discussion on the phase demodulation algorithm using the continuous wavelet transform (CWT) for non-stationary signal is presented. In the frequency domain of the digital signal, the transient characteristics extracting based on the wavelet ridge is analyzed, through which the phase of the wavelet ridge is received. And then the micro-displacement of the object is experimentally obtained. According to the proposed method, the theoretical analysis and the computer simulation are realized. Finally, the micro-displacement variation is obtained from the experimental interference signals by using the method. Comparing with traditional fast Fourier transform (FFT) method, the result of method is of higher accuracy. Experimental results show that the algorithm proposed is of high precision, low complexity, good robustness, and will have a broad prospect of application.