Monitoring the cable terminal’s partial discharge (PD) is of great significance to ensure the cable line’s safe and stable operation. To improve the anti-interference ability and real-time performance of partial discharge detection, this paper develops a partial discharge Mach-Zehnder interferometer (MZI) detection system for cross-linked polyethylene (XLPE) cable terminals. The optical fiber is implanted into the 10 kV XLPE cable terminal, and airgap defects of different volumes are set in the main insulation. The optical fiber inside the cable terminal serves as the sensing head of the MZI signal arm. PD test was carried out on the samples, and the test results of fiber optic MZI and high-frequency current transformer (HFCT) were compared and analyzed. The results showed that the 10 kV XLPE cable terminal does not produce PD due to optical fiber implantation. The partial discharge of 196 pC can be recognized by the fiber optic MZI for the cylindrical airgap defect sample with a base radius of 1.5 mm and a height of 3 mm. For the cylindrical airgap defect sample with a base radius of 1.5 mm and a height of 1 mm, the sensitivity of partial discharge detection by fiber optic MZI is higher than that by HFCT. The sensitivity of partial discharge inception voltage (PDIV) detection is increased by 27.5%.