We propose a quantum key distribution system using balanced homodyne detection, in which strong reference pulses are time‐multiplexed with weak signal pulses by means of fiber interferometer. We use a dual‐threshold decision scheme for postdetection to improve the system performance in terms of BER, with a trade‐off in effective key generation rate. We conduct experimental measurements at 64 km SMF fiber at 1550 nm wavelength, and we prove that the system security can also be enhanced with properly selected threshold parameters. © 2009 Wiley Periodicals, Inc. Microwave Opt Technol Lett 51: 1934–1939, 2009; Published online in Wiley InterScience (www.interscience.wiley.com). DOI 10.1002/mop.24471