A ring cavity fiber laser based on Fabry-Pérot interferometer (FPI) is proposed and demonstrated experimentally for micro-displacement sensing. Simulation results show that the dips of the FPI transmission spectrum are sensitive to the cavity length of the FPI. With this characteristic, the relationship between wavelength shift and cavity length change can be established by means of the FPI with two aligned fiber end tips. The maximum sensitivity of 39.6 nm/μm is achieved experimentally, which is approximately 25 times higher than those in previous reports. The corresponding ring cavity fiber laser with the sensitivity for displacement measurement of about 6 nm/μm is implemented by applying the FPI as the filter. The proposed fiber laser has the advantages of simple structure, low cost and high sensitivity.