A fiber microprobe vibration measurement system based on internal modulation has been developed. A sinusoidal phase modulated laser source is generated by modulating the current of the distributed feedback laser (DFB) with a sinusoidal signal. After passing through a fiber circulator and a fiber microprobe, the output laser beam is used to measure the displacement of a vibration source. The returned laser beam interferes with the reference laser reflected by the fiber microprobe to generate a phase generated carrier (PGC) interference signal. A real-time PGC signal processing algorithm is designed through a programmable logic gate array (FPGA) digital computing platform. A five-parameter ellipse fitting method is unitized to extract the error items introduced by additional intensity modulation and other factors and compensate for the phase nonlinear error. The fast Fourier transform (FFT) algorithm is unitized to analyze the vibration displacement. Theoretical analysis was conducted and a vibration measurement system was built. A series of experiments were conducted, including PGC signal demodulation, displacement measurement, and vibration measurement. The experimental results show that the vibration frequency range of the system covers 1142 Hz. In the 10 μm step displacement experiment, the average deviation measured is 0.173 μm. The resolution of vibration measurement is 1.221 Hz, and the harmonic distortion is less than 1.36%. The measurement system is expected to be applied in the field of precise vibration measurement.