A planar lightwave circuit-based multi-channel arrayed waveguide grating (AWG) is used as a critical part of the fiber Bragg grating (FBG) interrogation unit and designed to be integrated into the fiber grating sensing system. We designed and fabricated a high-performance, 40 channels AWG in the device, enabling whole C-band wavelength demodulation while maintaining high-measurement resolution. The AWG was designed to have 100-GHz channel spacing; the channel crosstalk was measured to be −45  dB. An AWG-based FBG interrogation system was built to analyze the characteristics of our unit. The testing result shows that our system has the capability of demodulating wavelength from 1526.438 to 1563.863 nm with wavelength accuracy within ±10  pm; the wavelength resolution is measured to be 1 pm. Our testing result confirms that an AWG-based FBG interrogator is an excellent choice for FBG sensing systems.