To overcome the accuracy limits of fringe counting method for a Fabry-Perot (F-P) interferometer and the complexity of a higher resolution demodulation system such as phase generated carrier (PGC), linear frequency modulation (LFM) and heterodyne frequency modulation, where residual amplitude modulation always exists in frequency modulation, a dual-fiber F-P displacement sensor based on double-fiber phase demodulation is presented. The proposed demodulation scheme eliminates the modulation on light source, improves the accuracy, and keeps the system cost as low as that of the fringe counting method. Compared with the reported dual-fiber F-P structure, this design has no strict requirement for a specific phase difference between the two interference paths, which makes it more feasible for manufacturing. Experimental results demonstrate a good linearity of 1.1% and a resolution of ±3 μm within a measuring range of 0~500 μm for the sensor system.