The non-linear characteristic of a non-contacting Inductive Proximity Sensor (IPS) with the temperature affects the computation accuracy when measuring the target distance in real time. The linear model based method for distance estimation shows a large deviation at a low temperature. Accordingly, this paper presents a non-linear measurement model, which computes the target distance accurately in real time within a wide temperature range from −55 °C to 125 °C. By revisiting the temperature effect on the IPS system, this paper considers the non-linear characteristic of the IPS measurement system due to the change of temperature. The proposed model adopts a non-linear polynomial algorithm rather than the simple linear Look-Up Table (LUT) method, which provides more accurate distance estimation compared to the previous work. The introduced model is fabricated in a 0.18 μm Complementary Metal Oxide Semiconductor (CMOS) process and packaged in a CQFN40. For the most commonly used sensing distance of 4 mm, the computed distance deviation of the Application-Specific Integrated Circuit (ASIC) chips falls within the range of [−0.2,0.2] mm. According to the test results of the ASIC chips, this non-linear temperature compensation model successfully achieves real-time and high-accuracy computation within a wide temperature range with low hardware resource consumption.