A major limitation on the optical joint transform correlator (JTC) is that the output plane is dominated by unwanted autocorrelation products. A new technique is proposed that uses time modulation and demodulation to separate the correlation components. Time modulation is applied to the JIG inputs, resulting in a time-modulated joint power spectrum. Demodulation of the transform plane separates the self-correlation components from the other terms. When the demodulated signal is the input to the second transform stage in the JTC the result is system peak-to-noise ratio/peak-to-secondary ratio (PNR/PSR) improvement, removal of input plane location constraints, and elimination of detection problems resulting from multiple targets. Two implementations are discussed. Using a general model for sinusoidal modulation, it is shown that amplitude, phase, and polarization modulation of the inputs all result in amplitude modulation of the correlation signals in the transform plane. The general solution is difficult to implement, because it requires temporal demodulation of the joint Fourier signal on a pixel-by-pixel basis. A more practical system results from the case of square-wave modulation, where it is shown that demodulation can be easily implemented through image subtraction using only two to four frames of data. This Fourier plane processing technique has been implemented using a binary JTC (BJTC). Performance improvement of 6 dB over the conventional BJTC is demonstrated through computer simulation and laboratory results.