A fiber-optic sensor and its corresponding system are presented and evaluated for on-line detection of acoustic emission stress waves generated by partial discharges in high-voltage power transformer. The fiber-optic sensors are placed inside the transformer for acoustic emission stress waves detection according to its properties of small size, light weight, high sensitivity and anti-electromagnetic interference. The sensor employs a distinct Fiber Bragg Grating as sensitive unite and covers it with epoxy for the detection of acoustic emission stress waves. The sensing principle of acoustic emission stress wave detection with fiber-optic sensor is studied in detail. The reflected spectrum of the sensing grating is shifted because of the influence of acoustic emission stress waves, which leads to the reflected light intensity changes at a special frequency point, and thus the detection of the acoustic emission signals can be achieved by the measuring of the changes of reflected light intensity. The experimental model of the acoustic emission sensing system is constructed and a sensing system performance optimizing strategy is presented, by which the sensing system is enable to operate at the half-peak frequency point of the rising or falling edge, and thus the good linear output of the system is obtained. Moreover, the operating point stabilizing technology of the sensing system is studied, and a signal feedback loop is established for automatic tracking of the sensor wavelength drifting, by which the fiber-optic sensor is ensured to operate at half-peak frequency point stably. The performance evaluation on partial discharges detection of transformer is launched and the results have demonstrated that the fiber-optic acoustic emission sensors are capable of detecting acoustic emission signals by partial discharges with high sensitivity and wide bandwidth compared with conventional piezoelectric transducers.