To study a fiber grating sensing and demodulation system applied to satellites, ultra-short fiber Bragg gratings with grating length of less than 0.5 mm, reflectivity of over 40%, 3 dB bandwidth of over 5 nm, and the edge linear region of the reflection spectrum of over 2 nm were fabricated by the hydrogen enrichment of high germanium fiber and optimization of UV exposure power. A novel method was proposed to transmit the ultra-short FBG as a sensor and demodulate it by using its spectral linear region in this paper. The frequency stabilized laser whose central wavelength was located in the spectral linear region was incident on the ultra-short fiber grating. The reflected optical power changed with the drift of the ultra-short fiber grating spectrum. As the frequency stabilization laser was located in the linear region, the reflected optical power was linearly related to the spectral drift, so that the sensing measurement could be realized. Using the system for strain and temperature measurements, the experimental results show that the optical power has a good linear relationship with strain and temperature, and the linearity is 0.997 and 0.999, the sensitivity is 54.59 nW/με and 230 nW/℃, respectively. The method can be used for accurate measurement of temperature and strain, and has the potential advantages of simple structure, low power consumption and high measurement spatial resolution.