In order to solve the distortion of the demodulated signal caused by the drift of modulation depth in the traditional phase generation carrier demodulation algorithms, the signal demodulation method of differential cross division was adopted. Related theoretical analysis and simulation verification were carried out, and a high-performance phase-generating carrier demodulation scheme that was not limited by the modulation depth was obtained. The results show that the demodulation performance of the improved algorithm is always excellent when the signals under test of different amplitudes and frequencies are used for simulation. When the values of modulation depth are respectively typical values such as 2.63rad and 2.37rad and atypical values such as 1.5rad and 3.0rad, the demodulated signals obtained by improved algorithm has no distortion. At the same time, when the modulation depth changes in the range of 0.5rad~3.5rad, compared with traditional demodulation algorithms, the amplitude of the demodulated signal in the improved algorithm is always consistent with the signal under test and the high-order harmonic components are always very small. This research solves the distortion phenomenon caused by the modulation depth change in traditional demodulation algorithms, and provides a reference for the demodulation scheme of the optical fiber interferometric sensor system.