This paper reports on a novel optical fiber-based sensing system for conducting simultaneous measurement of temperature and strain. The sensor design is based on the combination of active fibre and fibre gratings. Addressing smart structure applications erbium/ytterbium co-doped fibre is used to meet the requirements for both high temperature responsivity and small sensor size. The temperature dependence of ASE power under different pump wavelengths is investigated. An optical reference is induced to enhance the measurement resolution. The feasibility of this technique for simultaneous measurement of temperature and strain is demonstrated.