Action-potential-encoded optical second harmonic generation (SHG) has been recently proposed for use in detecting the axonal damage in patients with demyelinating diseases. In this study, the characterization of signal conduction along axons of two different levels of demyelination was studied via a modified Hodgkin–Huxley model, because some types of demyelinating disease, i.e., primary progressive and secondary progressive multiple sclerosis, are difficult to be distinguished by magnetic resonance imaging (MRI), we focused on the differences in signal conduction between two different demyelinated axons, such as the first-level demyelination and the secondlevel demyelination. The spatio-temporal distribution of action potentials along demyelinated axons and conduction properties including the refractory period and frequency encoding in these two patterns were investigated. The results showed that demyelination could induce the decrease both in the amplitude of action potentials and the ability of frequency coding. Furthermore, the signal conduction velocity in the second-level demyelination was about 21% slower than that in the first-level demyelination. The refractory period in the second-level demyelination was about 32% longer than the first-level. Thus, detecting the signal conduction in demyelinated axons by action-potential-encoded optical SHG could greatly improve the assessment of demyelinating disorders to classify the patients. This technique also offers a potential fast and noninvasive optical approach for monitoring membrane potential.