An　in-line　distributed　optical　fiber　sensor　based　on　the　principle　of　Sagnac　interferometer　is　developed,　and　it　is　used　to　detect　pipeline　leakage　and　locate　leakage　point　in　real-time.　The　measuring　principle　and　the　leaking　source　location　method　for　the　detection　system　are　analyzed,　and　the　influence　of　the　polarization　of　the　light　on　the　performance　of　the　system　is　researched.　The　system　can　obtain　optimal　performance　when　the　polarization　angle　between　the　two　beams　is　the　same;　the　leak　signal　can　not　be　detected　when　the　two　beams　are　orthogonal.　An　experiment　is　designed　to　detect　leaking　source　and　locate　leaking　source.　The　results　verify　that　the　system　can　locate　leaking　source　accurately　and　the　error　is　0.69%.