An optical fiber displacement sensor based on a light-controlled microbubble in an ethanol-filled fiber microcavity is proposed. The single-frequency 1550 nm laser in the side-lead-in single-mode fiber (SMF) produces an uneven temperature gradient by side irradiation in the ethanol-filled fiber microcavity. The microbubble shifts to the laser irradiation position along the microcavity due to the Marangoni effect and finally stops at the laser irradiation position. When the side-lead-in SMF moves, the microbubble follows. The surfaces of the microcavity and microbubble form a Fabry-Perot interferometer (FPI). The optical path difference (OPD) of the FPI is demodulated by the position of the side-lead-in SMF, which can be used for the displacement measurement with ultrahigh sensitivity (1.1 × 10-3 nm-1/µm). What is more, the proposed structure is only sensitive to a one-dimensional direction and has the advantages of non-contact, large range, and high resolution, which makes it a perfect candidate for displacement sensors.