Capacitive transducers are widely used in fundamental physics experiments, seismology, Earth or planetary observations, and space scientific and technical applications because of their high precision, simple structure, and compatibility with various measurements. However, in real applications, there is a trade-off between their resolution and dynamic range. Therefore, this paper is aimed at enlarging the dynamic range while ensuring high resolution. In this paper, a noise analysis of a capacitive transducer is presented, which shows that the amplitude noise of the carrier wave is the main limiting factor. Hence, a new method of generating a carrier wave with lower-amplitude noise is proposed in the paper. Based on the experimental verification, it is found that the carrier wave produced through the new method performed significantly better than the typical digital carrier wave when they were compared in the same sensing circuit. With the carrier wave produced through the new method, the dynamic range of the capacitive transducer can reach 120.7 dB, which is 18.3 dB greater than for the typical direct digital synthesis (DDS) method. In addition, the resolution of the carrier wave is mainly limited by the voltage reference components.