Abstract This paper introduces a design of the phase demodulation system based on FPGA for the phase-modulated self-mixing interferometer. By the processing that the modulation SIN signal and the doubling frequency modulation COS signal are respectively multiplied by the phase-modulated self-mixing signal(PSMI) and then low-pass filtered and shaped in the electrical domain, two orthogonal square wave signals sensitive to the object’s movement direction are obtained for displacement reconstruction. The FPGA signal processing system controls the generation of a highly stable and accurate sinusoidal signal source for the modulation of the electro-optic crystal(EOM). At the same time, the two orthogonal square wave signals obtained after the demodulation processing are subdivided for the high-precision measurement of a uniformly moving object’s displacement. The high-frequency amplifier circuit amplifying the self-mixing interference signal, multiplier & frequency doubler circuits based on MLT04 and low-pass filter circuits are designed. FPGA-based counting programs, DAC circuits and programs used for generating sine waves are also designed. In the experiment, comparison tests for displacement measurement are performed using the PI company’s two-dimensional precision electronically-controlled translation stage, and high-precision displacement measurement can be achieved. The demodulation system does not rely on a PC and a high-precision acquisition card, and can realize real-time measurement of displacement, greatly improving the practicability of the system.