We developed a noise reduction algorithm for the measurement accuracy improvement of a fiber-optic distributed temperaure sensor system. The denoising technique is based on the wavelet transform. The proposed algorithm was applied to a FBG sensor output with the Gaussian line-fitting algorithm to minimize the output noise which originated from the intensity noise of the laser light source and the instability of signal porcessing. We confirmed the feasibility of the denoising algorithm by comparing the measurement results with those obtained with the Gaussian line-fitting algorithm only.