A Fiber Bragg Grating (FBG) interrogation system with a self-adaption threshold peak detection algorithm is proposed and experimentally demonstrated in this study. This system is composed of a field programmable gate array (FPGA) and advanced RISC machine (ARM) platform, tunable Fabry–Perot (F–P) filter and optical switch. To improve system resolution, the F–P filter was employed. As this filter is non-linear, this causes the shifting of central wavelengths with the deviation compensated by the parts of the circuit. Time-division multiplexing (TDM) of FBG sensors is achieved by an optical switch, with the system able to realize the combination of 256 FBG sensors. The wavelength scanning speed of 800 Hz can be achieved by a FPGA+ARM platform. In addition, a peak detection algorithm based on a self-adaption threshold is designed and the peak recognition rate is 100%. Experiments with different temperatures were conducted to demonstrate the effectiveness of the system. Four FBG sensors were examined in the thermal chamber without stress. When the temperature changed from 0 °C to 100 °C, the degree of linearity between central wavelengths and temperature was about 0.999 with the temperature sensitivity being 10 pm/°C. The static interrogation precision was able to reach 0.5 pm. Through the comparison of different peak detection algorithms and interrogation approaches, the system was verified to have an optimum comprehensive performance in terms of precision, capacity and speed.