The invention discloses an embedded optical fiber roadbed settlement observing apparatus, and an observation method thereof. The apparatus comprises fiber grating pressure sensing devices, fiber grating temperature sensing devices, a fiber grating demodulator, a terminal receiving device, a PVC tube, a nylon conduit and a PE protection tube. According to the observation method, the fiber grating pressure sensing devices and the nylon conduit are embedded in soil in advance, and thus, the apparatus overcomes the defect that traditional settlement observation instruments interfere in construction due to burying of the instruments in filling soil for a construction area. During construction and post-construction settlement monitoring of a roadbed, the settlement of one point in the roadbed is converted into changes in the reflection wavelengths of fiber gratings of the fiber grating pressure sensing devices along with soil settlement, so settlement observation means are improved; and the apparatus has the characteristics of simple measurement method, high measurement accuracy, capacity of measuring upheaval displacement and high efficiency.