A novel fiber Bragg grating (FBG) temperature sensor system with high resolution and low cost demodulation mechanism was proposed. The metal groove encapsulating technique for FBG sensor was developed to improve the temperature sensitivity of FBG temperature sensor. Coefficient of thermal-expansion of the encapsulated FBG sensor was studied. The comparison of results between encapsulated FBG sensor and bare FBG sensor indicted that the temperature sensitivity of encapsulated FBG sensor is improved and the sensitivity coefficient is 3.6 times as much as that of bare FBG sensor. A long period grating (LPG) was used as linear response filter to convert wavelength into intensity for interrogation. In experiment, a broadband source was modulated by the LPG and then it illuminated the sensor grating, which could interrogate the wavelength shifts of sensor system. The experimental results agreed well with the theoretical analysis. The FBG temperature sensor realized a high resolution of 0.02 ℃.