Displacement sensor of two-circle reflective coaxial fiber bundle for measuring slide bearing of rotating machinery was designed. A mathematical modelof modulation function for the fiber bundle sensor was established. The factors in fluencing the sensor′s characters, including receiving fiber core radius a0,axis space d between the transfer fiber and the receiving fiber, the maximum entrance angle θcof the optic fiber, were simulated and analyzed. Results show that this fiber sensor can effectively eliminate influences on the output characteristics caused by power fluctuation, difference of surface reflectivity and transmission loss. At last, optimization design parameters of the system were presented.