Pipelines are used across multiple key industries and in a sense acts like a circulatory system for society by carrying vital fluids safely across large distances. A wide variety of tools have been developed to help monitor the health of pipelines. Among these tools, the fiber Bragg grating (FBG) hoop strain sensor has great potential to measure the hoop strain variation on a pressurized pipeline and thus help detect anomalies, such as leakages. In this work, the hoop strain sensor with enhanced sensitivity is developed and encapsulated for pipeline leakage monitoring. Its specially designed mechanism with pre-tension function is detailed. The other branch of this research is the application of hoop strain information for pipeline leakage detection and localization. Three hoop strain-based methods are proposed to localize pipeline leakages with higher accuracy and in wider variety of situations. Some simulation work and experimental study are conducted to verify these methods. The results demonstrate that the FBG hoop strain sensor shows great promise for pipeline leakage detection and localization.