A fiber Bragg grating (FBG) sensor based on chemically etched cladding to detect dissolved hydrogen is proposed and studied in this paper. Low hydrogen concentration tests have been carried out in mixed gases and transformer oil to investigate the repeatability and sensitivity. Moreover, to estimate the influence of etched cladding thickness, a physical model of FBG-based hydrogen sensor is analyzed. Experimental results prove that thin cladding chemically etched by HF acid solution improves the response to hydrogen detection in oil effectively. At last, the sensitivity of FBG sensor chemically etched 16 μm could be as high as 0.060 pm/(μl/l), increased by more than 30% in comparison to un-etched FBG.