Abstract: Spatially modulated fully polarized imaging is a new type of simultaneous fully polarized imaging technology. Based on the Stokes theory of polarization, the image of the target with all stokes parameters (S₀, S₁, S₂, S₃) is spatially modulated and coupled into a single interferogram by steady-state interference method. The modulation coupling mechanism and model construction method of spatially modulated full polarization imaging were analyzed, and the corresponding demodulation algorithm was optimized, and the algorithm was simulated and verified by simulation data and measured full polarization information. Firstly, based on the basic theory of polarization and interference, the mathematical model of spatial modulation was given. Then, based on the spatial modulation mechanism of polarization interference of imaging information and the mathematical characteristics of the model, the basic principle of spatial reconstruction of fully polarized information was analyzed. By solving the overdetermined linear equations inside the template, the size range of the template was determined by using the condition number criterion, and the size of the template was optimized by using the condition number of demodulation matrix in the range, and the concrete implementation method of spatial demodulation algorithm was given. Finally, the polarization image was designed and simulated, the interferogram was modulated, and the developed algorithm was tested and analyzed. The structure similarity (SSIM) parameter is introduced to quantitatively evaluate the demodulation quality of the proposed algorithm.