The principle of fiber optic interferometric hydrophone using heterodyne detection scheme is introduced and the upper limit of dynamic range of the digital heterodyne detection is analyzed in detail. The upper limits of dynamic range decided by heterodyne frequency and the arctangent or differential cross-multiply (DCM) quadrant demodulation algorithm are analyzed in theory and compared with each other. Analysis results indicate that the upper limit of dynamic range changes with heterodyne frequency. However, with the same heterodyne frequency, different upper limits of dynamic range are achieved with arctangent or DCM algorithm. The upper limit of dynamic range can achieve a higher value when the heterodyne frequency is equal to a quarter of the sampling rate and the arctangent quadrant demodulation algorithm is adopted. Numerical simulation validates the theoretical analysis. A fiber optic hydrophone system based on heterodyne detection technique is constructed and the experimental results, which correspond to the theoretical results, demonstrate the feasibility of the fiber optic hydrophone to achieve large dynamic range and large-scale array.