A novel digital active homodyne demodulation scheme to eliminate the signal fading in interferometric fiber‐optic sensors is proposed. The error signal is obtained by the square‐wave phase modulation and then the digital correlation detection technique is applied to demodulate the low‐frequency environmental phase drift and generate the offset phase, which is then fed back the integrated optical phase modulator to lock the interferometer in quadrature. The high‐frequency signal phase can be read out and recovered from the photodetector output with the interferometer in quadrature. The simulation and experimental results verify the feasibility of the proposed scheme, which obviates the feedback integrator saturation and the system resetting problem encountered in the conventional active homodyne detection schemes. © 2010 Wiley Periodicals, Inc. Microwave Opt Technol Lett 53:20–23, 2011; View this article online at wileyonlinelibrary.com. DOI 10.1002/mop.25640