The intensity modulated type (reflective method) optical fiber sensor is a well -known method and widely applied to the displacement measurements and other industrial purposes. This type sensor has the advantages of relatively cheap cost, small sensor size and easiness of operation. The sensitivity of the sensor is very dependent of several error terms; the variation in the intensity of the light source and the changes in the surface reflectivity of the object. An optical fiber coupled displacement probe with a new compensation method is presented in this paper. The proposed displacement sensor can measure the displacements of the target surface independent of surface reflectivity error that is caused by the materials and surface processing grade.