A digital lock-in detection technique is commonly used to measure the amplitude and phase of a selected frequency signal. A technique that uses a square wave as the reference signal has an advantage over the one using a sinusoidal wave due to its easier implementation and higher computational efficiency. However, demodulating multiple-frequency composite signals using square wave reference may result in interference between channels. To avoid interference between channels and reduce the computational complexity, we modify the calculations and determine the optimal parameter settings of the low-pass filter and carrier frequency, as detailed in this paper. The results of our analysis show that when the length of the average filter and carrier frequencies are properly set, the interference between the channels is removed. This optimization produces the digital lock-in detection suitable for measuring multi-channel sensor signals.