Displacement sensor of two-circle reflective coaxial fiber bundle for measuring slide bearing of rotating machinery is designed. A mathematical model of modulation function for the fiber bundle sensor is established. The factors influencing the sensor's characters, including receiving fiber core radius a0, axis space d between transfer fiber and receiving fiber, the maximum entrance angle c θ of the optic fiber, are simulated and analyzed. Results show that this fiber sensor can effectively eliminate the influence to output characteristics caused by power fluctuation, difference of surface reflectivity and transmission loss. At last, optimization design parameters of the system are presented.