Optical current sensors (OCSs) are initially developed to measure relatively large current over a wide range of frequency band. They are also used as protective devices in the event a fault occurs due to a short circuit, in the power generation and distribution industries. The basic principal used in OCS is the Faraday effect. When a light guiding faraday medium is placed in a magnetic field which is produced by the current flowing in the conductor around the magnetic core, the plane of polarization of the linearly polarized light is rotated. The angle of rotation is proportional to the magnetic field strength, proportionality constant and the interaction length. The proportionality constant is the Verdet constant V (λ, T), which is dependent on both temperature and wavelength of the light. Opto electrical methods are used to measure the angle of rotation of the polarization plane. By measuring the angle the current flowing in the current carrying conductor can be calculated. But the accuracy of the OCS is lost of the angle of rotation of the polarization plane is dependent on the Verdet constant, apart from the magnetic field strength. As temperature increases the Verdet constant decreases, so the angle of rotation decreases. To compensate the effect of temperature on the OCS, a new method has been proposed. The current and temperature are measured with the help of a duel frequency method. To detect the line current in the conductor or coil, a small signal from the line current is fed to the reference of the lock in. To detect the temperature, the coil is excited with an electrical signal of a frequency different from the line frequency, and a small sample of this frequency signal is applied to the reference of the lock in. The temperature and current readings obtained are look up at the database value to give the actual output. Controlled environment is maintained to record the values in the database that maps the current and temperature magnitude values at the DSP lock in amplifier, to the actual temperature and current. By this method we can achieve better compensation to the temperature changes, with a large dynamic range and better sensitivity and accuracy.