A fiber-optic perimeter security system based on Mach-Zehnder (M-Z) interferometer is designed. Modified phase detection of double-fiber M-Z interferometer is proposed in getting signal in combination with correlation algorithm. The usage of correlation algorithm in location is introduced in detail. The simulation verifies the feasibility of this method. If the same signals with different time delays are analyzed using correlation algorithm, the accurate time difference can be obtained by the location of the maximum. The system′s location accuracy is directly related to the sampling rate. When the sampling rate is set as 20 MHz, a theoretical location accuracy of 10.22 m is obtained. A new method of processing piecewise signal is presented, which can reduce the computational complexity on the base of high positioning accuracy brought by the high sampling rate. The computation speed is increased about 8 times.