The linear demodulation range and background noise of the Michelson interferometer system are investigated with a laser phase noise measurement system. We have theoretically and experimentally analyzed the performance of the interferometer system by changing the frequency modulation amplitude of the laser and the optical path difference (OPD) of the interferometer, respectively. It is shown that the linear demodulation range of the Michelson interferometer system is finite, which depends on the parameters of the system, such as the sample frequency, the delay time between two interferometer arms, and the system bandwidth. Furthermore, the experimental results indicate that the background noise of the interferometer system can be reduced by using a sufficiently long OPD so that the smaller true phase information can be detected with the demodulation system. The parameters of the measurement system could be optimized to satisfy the demand of the phase demodulation with different levels, which is of great significance for the phase monitoring interrogator, such as fiber-optical interferometer sensors and distributed acoustic sensors.