White light interferometry has been used in the sensing area for many years. A novel data processing method for demodulating the information from the interference spectrum of a white light system is presented. Compared with traditional algorithms, both high-resolution and large dynamic range have been achieved with a relatively low-cost system. Details of this arithmetic are discussed. A compact white light interferometric system employing this algorithm has been developed, combined with fiber Fabry-Perot sensors. A stability over 48 hours with a dynamic range on the order of tens of microns has been achieved with this system. The temperature dependence of this system has been analyzed, and a self-compensating data processing approach is adopted. Experimental results demonstrated a shift in the temperature range of 10 to © 2003 Society of Photo-Optical Instrumentation Engineers.