To address the challenge of environmental temperature interference in micro-displacement monitoring within intelligent transportation systems, this study proposes a temperature-compensated micro-displacement sensor utilizing Terfenol-D giant magnetostrictive material and dual Fiber Bragg Gratings (FBGs). The sensor employs the magnetostrictive effect of Terfenol-D to drive micro-deformation. A differential configuration of two FBGs ( \(\textrm{FBG}_1\) axially attached, \(\textrm{FBG}_2\) attached at a specific angle) reduces temperature-induced wavelength drift through differential wavelength demodulation, converting the wavelength difference into displacement information. To evaluate system performance, a co-simulation platform integrating an Intelligent Driver Model (IDM) with the FBG sensor was established. The platform generates simulated vehicle-related micro-displacement, temperature, and vibration inputs for the sensor model. Simulations under dynamic multi-vehicle scenarios and coupled temperature-vibration interference demonstrate that the sensor achieves a displacement error below 6.2 % under \(\pm 10^\circ\) C fluctuations, with millisecond-scale response time. Two demodulation schemes were experimentally evaluated: spectrometer-based demodulation and an integrated demodulation module. Results indicate that within the 0– \(25 \,\upmu \textrm{m}\) measurement range, the integrated demodulation scheme achieved a coefficient of determination of R² = 0.99312 and a magnetic-field response sensitivity of \(6.83 \,\textrm{pm}/ \textrm{mT}\) . The displacement error remained below \(6.2\%\) under temperature fluctuations of \(\pm 10^{\circ }\textrm{C}\) , with a dynamic response time on the millisecond scale, indicating improved temperature compensation under the tested conditions. The system also features immunity to electromagnetic interference, high integration, and miniaturization, making it suitable for micro-displacement monitoring applications such as electric vehicle chassis deformation monitoring and early-stage structural health warning, where micro-displacement measurement within a 0-25 \(\upmu \textrm{m}\) range is required. It is not intended for large-amplitude deformations typical of bridge or pavement structures. This research provides a temperature-compensated optical sensing approach for vehicle-related micro-displacement monitoring and related intelligent transportation applications.
