Frequency modulated semiconductor laser signals are demodulated by optical heterodyne detection using an independently temperature stabilized semiconductor laser local oscillator and a square-law detector followed by electrical frequency discrimination circuitry. Short-term and long-term beat frequency stability of the free-running laser transmitter and the local oscillator are delineated. Direct frequency modulation characteristics of the laser transmitter are studied by observing the intermediate frequency spectra. Frequency modulation-demodulation of pulse pattern signals at 100-200 Mbit/s is demonstrated. Reduction of the intermediate frequency fluctuation to less than 5 MHz is realized by employing a feedback of the RF frequency discriminator output to the local oscillator injection current.