Displacement monitoring systems play a crucial role in ensuring the safety of tunnels. Existing sensing technologies and analysis methods may be insufficient for monitoring tunnel displacement, particularly vertical displacement, due to the harshness of long-term monitoring conditions and the intricacies of structural characteristics. A long-gauge fiber Bragg grating (FBG) sensor can be used to obtain macro- and micro-level information and be connected in series for area sensing. In this study, a novel method was developed which utilizes long-gauge strain sensors to monitor the vertical displacement of a tunnel. This method employs a combination of mechanical analysis and monitoring data to accurately estimate the vertical displacement of the structure from the measured coupled strain. Several key aspects of the proposed method for identifying vertical displacement were investigated, including establishing a separation model of coupled strain on the cross-section, deriving the theory for vertical displacement identification, and determining the sensor layout of the tunnel. A series of simulation tests of a tunnel with a three-hole frame structure confirmed the efficiency and robustness of the proposed method, even when subjected to various loading conditions, noise levels, and sensor layouts. The results of this work may provide valuable insights and practical guidance for the effective and continuous displacement measurement of tunnels, ensuring their structural integrity and operational safety.