This paper proposes a synchronous demodulation technology based on sample-and-hold which shows significant advantages in the application of precision sensors. The traditional synchronous demodulation methods are discussed, and then the working principle of the proposed method is theoretically analyzed in detail. It is found that the proposed method can not only effectively suppress the harmonic components caused by the signal source but is also beneficial to improving the dynamic range of precision sensors. The eddy current sensor is adopted as an example of precision sensors, and a high-precision eddy current displacement sensor prototype was designed and tested. The results show that with the proposed method, the harmonics in the output signal are suppressed more effectively, and the demodulation circuit is relatively simplified. This synchronous demodulation method has an extensive application prospect in precision sensors.