A multi-bit optical sensor multiplexing and networking concept is presented, The scheme is intended for applications where the accuracy of the information required is not necessarily high, but where a large number of sensors may be required to monitor more than one threshold level of a measurand. The proposed concept has been verified by employing a di-bit (two binary digits), all-optical temperature sensor in conjunction with a time division multiplexing (TDM) scheme. A di-bit sensor prototype has been designed, constructed and evaluated. An optimum sensor array design for TDM digital optical sensors has been derived and evaluated. It is shown that up to 32 di-bit (or 64 1-bit) sensors per array may be multiplexed for a power margin of 42 dB whilst employing simple and inexpensive standard multimode fibre technology and an LED source. The trade-offs between the maximum number of sensors, power margin, bit rates generated by the sensor arrays and the fibre delay lines necessary for TDM have also been discussed.