The spatially modulated full polarization imaging system can acquire target images and polarization information by using spatial carrier fringes to encode full Stokes parameters in a single interference image. This polarization detecting technology uses a Savart Plate (SP) as a spatial modulation module encodes two-dimensional Stokes parameters S0~S3 and the information of four Stokes quantities can be obtained by a single detection. The principle and mathematical model of this system is analyzed in details, and the image reconstruction method is also presented. Two different frequency domain filtering algorithms for demodulation are applied to reconstruct images in numerical simulation and laboratory experiment. The frequency domain algorithm based on two-dimensional Gauss low-pass filter does not have ringing, it has obvious advantages in image reconstruction. The measured data of polarized light and depolarized light from spatially modulated full polarization imaging system is demodulated by optimal algorithm. Reconstruction results show the polarization degree of depolarization light is less than 5%, which the one of polarized light generated by a polarizer is approximate to 100%. These results are coincident with the theoretical prediction well, which verify the feasibility and validity of the algorithm.