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Polarization-dependent in-line Mach-Zehnder interferometer fabricated by using a polarization-maintaining fiber (PMF) depending on input polarization state is investigated for discrimination of temperature and ambient index. Interference is induced by inserting the PMF with a length of 1 cm between two conventional single mode fibers. A core-misalignment method is employed to induce the interference patterns, which strongly depend on two orthogonal polarization modes. The proposed in-line Mach-Zehnder interferometer has two different transmission characteristics with different temperature (0.115 and 0.097 nm/° C for x- and y -polarization modes, respectively) and refractive index sensitivities (46.7 and 36.7 nm/RIU for x - and y -polarization modes, respectively). Accordingly, it is possible to simultaneously measure temperature and ambient index changes.