A signal demodulation scheme based on heterodyne technique is demonstrated, which can help fiber-optic hydrophone system meet the demand of large dynamic range and large scale multiplexing. Optical system based on the heterodyne demodulation is given. Reference signal in the demodulation procedure is obtained from the optical heterodyne output, which is quite different from other reported heterodyne techniques. This method not only simplifies RF electronics, but also eliminates the effects of frequency shift vibration generated by the acoustic-optic modulators. Demodulation algorithm is presented and the maximum signal processing capability is analyze. Experiments are carried out and the results show that a signal with a frequency of 1kHz and amplitude of 40rad could be demodulated without distortion when the heterodyne frequency is 64kHz. The same signal is demodulated using PGC scheme with a modulating frequency equal to the heterodyne frequency, and the result shows distortion. Comparing the two demodulation methods verifies that the system we have designed works well and is more suitable for the detection of large signal. Besides, this architecture of system offering advantage of easy to be time-division multiplexed. Together with wavelength-division multiplexing, it demonstrates the potential for the fiber-optic hydrophone to achieve large-scale arrays with high dynamic range.