We have designed, fabricated, and characterized a 1 x 8 ultrasmall compact arrayed-waveguide grating (AWG) on silicon-on-insulator (SOI) in a fiber grating demodulation integration microsystem. The miniature AWG, consisting of Si photonic wire waveguides, was designed using the complete modeling simulation in the beam propagation method. The device was fabricated on an SOI substrate and evaluated in the wavelength range around 1.55 μm, with an effective area of 230 x 160 μm. Clear demultiplexing characteristics were observed with a channel spacing of 1.91 nm. The influence of the waveguide widths on crosstalk defined by adjacent channel crosstalk and phase error is discussed. Insertion loss, crosstalk, and nonuniformity of loss were measured to be −3.18, −23.1, and −1.35 dB, respectively. Thus, the AWG design is the best choice for a fiber Bragg grating demodulation microsystem.