This article proposes a synchronous demodulation method based on gated integrator for precision sensors, which shows significant improvement in signal-to-noise ratio (SNR) and resolution. Several traditional demodulation methods are introduced, especially the lock-in amplifier in detail for comparison. Through a comprehensive analysis of the gated integrator, it is proven that the proposed method shows a larger useful signal output with similar noise suppression capability compared with the lock-in amplifier so a better SNR could be obtained. Circuits of the two demodulation methods are manufactured and tested, and the results show that the output characteristic of the proposed method is consistent with the theoretical analysis. A precision eddy current displacement sensor prototype with the two demodulation methods is designed and tested as an example. It is found that the resolution of the sensor is improved with the proposed method by about 0.4 bits. Furthermore, this method is expected to function efficiently for any precision sensor requiring synchronous demodulation.