The Linear differential displacement sensor (LVDT) has been widely used in airborne testing system, due to its high sensitivity, good linearity, high resolution, long service life and high reliability. In order to design an LVDT decoding circuit that have a high accuracy, good stability and can meet the demand of airborne testing, the relationship between core displacement and the output voltage signal of an LVDT sensor has been analyzed, the internal AD698 demodulation principle has been studied, then an signal decoding circuit based on AD698 has been designed. The circuit produces the excitation signal by peripheral components, and gets the DC voltage that is proportional to the magnetic core displacement by demodulating the excitation signal and the output signal. Then, the precision and stability of the decoding circuit has been verified, it's show that the circuit can meet the requirements of airborne test, now the circuit has been completed gentle vibration test and successfully used in airborne testing system.