A linear distributed optical fiber sensor based on the principle of Sagnac interferometer is developed to detect pipeline leakage and locate leakage point in real-time. The traditional Sagnac interferometer is converted into in-line structure by using a Faraday rotator mirror, and the in-line structure is applied easily in perplexing pipelines. The representation of phase change caused by leakage is formulated for optic signal. The measuring principle and leaking source location method for the detection system are analyzed. An experiment is designed to detect leaking source and locate leaking source, and the leak is produced at 4.020 km from Faraday rotator mirror. The results verify that the system can realize leaking source detection and location accurately and the largest location error is less than 118 m.