In order to eliminate the influence of light intensity disturbance and phase modulation depth on the phase generated carrier(PGC) demodulation, this paper proposes a phase demodulation algorithm based on mixing and filtering and phase division differential which is called PGC demodulation improved algorithm. The algorithm makes the demodulated signal without any variables by filtering and differential division and differential and integration operation. PGC demodulation improved algorithm is theoretically analyzed and deduced, and the simulation model is constructed by using Labview platform to verify the advantages of the proposed algorithm over traditional algorithm. A demodulation system based on Michelson interference is built for experimental verification. The experimental results show that the signal to be measured demodulated by the improved PGC demodulation algorithm will not produce harmonic distortion under different phase modulation depth. In the case of different light intensities, the demodulated signal amplitude remains the same.