A novel optical fiber Fabry–Perot interferometer (FPI) based on the Vernier effect is proposed for micro-displacement sensing. The sensor is composed of an optical fiber microsphere and a section of multimode optical fiber with a flat end surface. The air cavity in the middle is used as the Fabry–Perot cavity. The extinction ratio of the reflection spectrum is significantly improved by the optical fiber microsphere, and the extinction ratio is ∼12 dB. First, a single FPI is tested for micro-displacement. A sensitivity of 2.13 nm/µm and linearity of 99.31% are obtained within the range of 0–1.872 µm via phase demodulation. The fabricated optical fiber FPI is used as the sensing arm and cascaded with the designed analog reference arm. The micro-displacement sensitivity of the sensing arm can be improved to 28.92 nm/µm through the Vernier effect, i.e., 13.58 times that of a single FPI. The fabricated sensor exhibits the characteristics of high sensitivity, contrast, and linearity; a compact structure; and low cost. It can be used for micro-displacement detection. In addition, the analog reference arm is unaffected by the environment, and it can freely adjust sensitivity magnification. Accordingly, it is applicable to micro-displacement detection scenarios under different sensitivity requirements.