This paper reports the design of an optical fiber-based velocity measurement system and its application in measuring the in-bore projectile velocity. The measurement principle of the implemented system is based on Doppler effect and heterodyne detection technique. The analysis of the velocity measurement principle deduces the relationship between the projectile velocity and the instantaneous frequency (IF) of the optical fiber-based system output signal. To extract the IF of the fast-changing signal carrying the velocity information, an IF extraction algorithm based on the continuous wavelet transforms is detailed. Besides, the performance of the algorithm is analyzed by performing corresponding simulation. At last, an in-bore projectile velocity measurement experiment with a sniper rifle having a 720 m/s muzzle velocity is performed to verify the feasibility of the optical fiber-based velocity measurement system. Experiment results show that the measured muzzle velocity is 718.61 m/s, and the relative uncertainty of the measured muzzle velocity is approximately 0.021%.