The linear variable displacement transducer (LVDT) is a widely used displacement sensor in engineering. The ability to work in a high-temperature and radioactive environment is an advantage of LVDT’s application in nuclear engineering. This paper utilizes the FEM to explore the LVDT design and performance space. Model validation is accomplished by comparing the simulation results with published experimental results. Important parameters, such as magnetic core permeability, core radius, and coil thickness, are discussed based on simulation results. The influence of temperature is investigated when the permeability is larger than a certain value (permeability saturation point). The FEM model agrees with the experiment well, and it can help to explore the characteristic of LVDT and guide the future design. For high-temperature LVDT designs, selecting the magnetic core material with permeability higher than the permeability saturation point in the whole measurement range is essential for steady output.