This paper proposes a PGC-arctangent-peak seeking (PGC-Arctan-FP) joint demodulation algorithm. The algorithm avoids the large errors in calculating the FBG’s center wavelength caused by the unstable modulation depth when the phase-generated carrier (PGC) method is used to demodulate FBG vibration sensors. Firstly, the output signal of the optical path multiplied with the fundamental frequency and the two-fold frequency of the carrier signal respectively. Then passing them through the low-pass filter to obtain quadrature signals of different amplitude containing the information to be measured. After that, the peaks of this orthogonal signal are searched one by one. The average amplitude of the two signals is calculated separately. The average amplitude is cross multiplied of the two signals to make the quadrature signals equal in amplitude. Finally, the frequency and amplitude of the FBG stretch are accurately solved after an inverse tangent operation and high-pass filtering. The feasibility of the PGC-Arctan-PS algorithm is verified by simulation and experiment. This algorithm can accurately solve the vibration signal from 100 Hz to 1000 Hz, and the relative error of FBG wavelength calculation is less than 0.81%. The PGC-Arctan-FP algorithm can effectively avoid the influence of unstable modulation depth on the solution accuracy.