Graphene-based temperature sensor is characterized by low absorption coefficient and large thermal conductivity. We report a grapheme-coated microfiber (GCM) structure based sensor, which is demodulated with a dual-wavelength erbium-doped fiber laser (DWEDFL). The “thermophoresis effect” of GCM and gain competition between the two lasing wavelengths allow us to achieve an ultrahigh temperature sensitivity up to 2.10 dB/°C. To the best of our knowledge, it is the highest one among the intensity-type temperature sensors reported so far. The sensor has the potential in sensing application for its merits including high sensitivity and convenience of demodulation. Our results demonstrate that the GCM structure combined with the gain competition scheme offers an alternative way for high-sensitivity optical fiber sensing applications.