Inductive proximity sensors (IPSs) present a unique no-contact advantage. They are widely preferred for displacement measurement in various industrial fields (e.g., aviation and aerospace), and they are improved continuously. When the inductance and resistance components of the IPS sensing core are separated, the influence of temperature drift on measurement can be eliminated. The complexity of online computation of component separation can be reduced using a two-dimensional look-up table method. However, this method exhibits disadvantages, such as large capacity of the look-up table, dependency on precision measurement of sensing core parameter, and nonlinear distribution of measurement resolution. This study aims to overcome these disadvantages by examining the nonlinear relationship between the response of the sensing core and the ambient temperature, and proposes a dimension-reduced measurement method. The proposed method extracts the characteristics of the response curves at two temperatures and calculates the characteristics of the response curves at any temperature using a linear approximation. The look-up table capacity is less than 0.37% of the two-dimensional look-up table capacity (condensed) under the same condition; dimension reduction enables the construction of a complete look-up table directly by calibration procedures and avoids precise measurement on sensing core parameters; the calibration procedures establish uniform mapping of the distribution of measurement resolution. The experiment shows that, when the measurement ranges are 0–6, 0–5, and 0–4 mm, the maximum measurement errors are 0.140, 0.065, and 0.040 mm, respectively, under temperature ranging from 20 ∘ C to 110 ∘ C. This study extends the measurement range from 0–5 mm to 0–7 mm and improves the measurement accuracy over 0.1 mm (50% at 5 mm) compared with the two-dimensional look-up table method. Therefore, the proposed method not only inherits the advantages of the original method but also achieves the above-mentioned expected capacity improvements effectively.