In this paper, a high-accuracy measurement method for rotor-stator axial clearance in narrow spaces is proposed. The optical path structure based on all-fiber microwave photonic mixing is established. To improve the accuracy and expand the measurement range, the total coupling efficiency over the entire measurement range at different working distances of fiber probe was evaluated by Zemax analysis tool and theoretical model. The performance of the system was verified by experiments. The experimental results show that the measurement accuracy of axial clearance is better than 10.5 um within the range of 0.5–20.5 mm. The measurement accuracy has been effectively improved compared to previous methods. Additionally, the probe size is reduced to a mere diameter of 2.78 mm, which is more suitable for axial clearance measurement in narrow spaces inside rotating machines.