We develop a new method to read the frequency modulation (FM) of a laser diode self-mixing interferometer (SMI), based on using a Mach–Zehnder interferometer as an edge filter, and obtain improved performance respect to the normally used amplitude modulation (AM) signal. The converted FM signal is much larger and has a better signal-to-noise ratio than the normally used AM signal. The minimum detectable signal of the SMI is improved by a factor of 150 with our setup that uses an all-fiber technology to realize the compact Mach–Zehnder filter (MZF). The MZF has a record 19 (GHz) −1 conversion factor and is tuned at half-fringe on the laser wavelength with a feedback loop acting on the laser bias current. On small amplitude vibrations measured with the converted-FM signal, we attain a displacement (NED) of 1.3-pm/ √ Hz, about two orders of magnitude better than the AM channel or a normal SMI.