A new demodulation algorithm of the fiber-optic Fabry-Perot cavity length based on the phase generated carrier (PGC) is proposed in this paper, which can be applied in the high-temperature pressure sensor. This new algorithm based on arc tangent function outputs two orthogonal signals by utilizing an optical system, which is designed based on the field-programmable gate array (FPGA) to overcome the range limit of the original PGC arc tangent function demodulation algorithm. The simulation and analysis are also carried on. According to the analysis of demodulation speed and precision, the simulation of different numbers of sampling points, and measurement results of the pressure sensor, the arc tangent function demodulation method has good demodulation results: 1 MHz processing speed of single data and less than 1% error showing practical feasibility in the fiber-optic Fabry-Perot cavity length demodulation of the Fabry-Perot high-temperature pressure sensor.