A method of polarization induced fading eliminating with PDR (Polarization Diversity Receiver) is analyzed theoretically. Complete polarization induced fading is avoided through tri-state PDR method. The phase measurement result of PGC(Phase Generated Carrier) demodulating technology based on ARCTAN calculation is immune to amplitude change of interference signal due to polarization induced fading. Combination of tri-state PDR method and PGC demodulating technology based on ARCTAN calculation overcomes the problem of polarization induced fading in interferometric optical fiber sensor and ideal demodulation of phase signal will be implemented.