To eliminate the nonlinear error of phase generated carrier (PGC) demodulation in sinusoidal phase modulating interferometer (SPMI), an active linearized PGC demodulation with fusion of differential-and-cross-multiplying (PGC-DCM) and the arctangent (PGC-Arctan) schemes is proposed. In this method, the periodic integer multiple of π (π-integer phases) of PGC-Arctan without nonlinear error and the corresponding PGC-DCM results recorded at the same time are fused to obtain a calibration coefficient for PGC-DCM demodulation. Combining the accurate π-integer phases of PGC-Arctan and the calibrated fractional phase in the range of π of PGC-DCM, a linearized PGC demodulation result can be achieved, effectively eliminating the nonlinear error caused by drifts of phase demodulation depth (m) and carrier phase delay (θ). The distinct advantage of the proposed method is that it actively and linearly calibrates the fractional result of PGC-DCM without needing to measure or compensate m and θ. Simulation and displacement measurement experiments with different m and inherent arbitrary θ are performed to validate the proposed method. The experimental results show that nonlinear error of the proposed method can be reduced to about 0.1 nm with real-time linearization.