High sensitivity magnetic field sensors have been applied to biotechnology problems such as magnetoencephalography and magnetocardiography. Unfortunately, the high cost and/or development of the sensors often limit the widespread use of these medical diagnostic systems. Fiber optic magnetostrictive sensors offer high sensitivities with competitive fabrication cost. Magnetostrictive sensors have experimentally demonstrated resolutions as low as 23 pT/√Hz without any mu-metal shielding. With respect to the sensor cost, fiber-optic-based magnetic field sensors leverage the advanced component development and the economies of scale of the telecommunications industry. In addition, the trend in interferometric sensor development has been to transfer the demodulation complexity from hardware to the digital signal processing algorithm. This reduction in hardware significantly reduces the cost of the overall sensor system. In this paper, we present a demodulation algorithm for an interferometric magnetic field sensor. The sensing mechanism is based on the magnetostriction of a material bonded to the optical fiber in the sensing leg of the interferometer. A phase-generated-carrier demodulation scheme is assumed. The algorithm features real-time demodulation of arbitrary signal waveforms. We present the theoretical derivation of the algorithm and verify its operation through computer simulation.