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Polarized low-coherence interferometry (PLCI) is widely used for the demodulation of Fabry–Perot (F-P) sensors. To avoid the influence of noise and dispersion on interference fringes, this paper proposes a data processing method in which the wavelet tools are applied to extract useful information from the extremum locations and envelope center of the fringes. Firstly, the wavelet threshold denoising (WTD) algorithm is used to remove electrical noise, and the complex Morlet wavelet is used to extract the fringe envelope. Based on this, the envelope center is used to predict the extremum locations of the specified order in its adjacent interval, the predicted locations are used as references to track the exact extremum locations, and the middle location of the peak and valley values is obtained to demodulate the F-P cavity accurately. The validity of this demodulation theory is verified by an air F-P cavity whose cavity length varies from 17 to 20 μm. With a sampling interval of 30 nm, the experimental results indicate that the repeatability accuracy is higher than 6.04 nm, and the resolution is better than 4.0 nm.