We propose a cavity length demodulation method that combines virtual reference interferometry (VRI) and minimum mean square error (MMSE) algorithm for fiber-optic Fabry–Perot (F-P) sensors. In contrast to the conventional demodulating method that uses fast Fourier transform (FFT) for cavity length estimation, our method employs the VRI technique to obtain a raw cavity length, which is further refined by the MMSE algorithm. As an experimental demonstration, a fiber-optic F-P sensor based on a sapphire wafer is fabricated for temperature sensing. The VRI-MMSE method is employed to interrogate cavity lengths of the sensor under different temperatures ranging from 28°C to 1000°C. It eliminates the “mode jumping” problem in the FFT-MMSE method and obtains a precision of 4.8 nm, corresponding to a temperature resolution of 2.0°C over a range of 1000°C. The experimental results reveal that the proposed method provides a promising, high precision alternative for demodulating fiber-optic F-P sensors.