Abstract: In order to realize the measurement of micro displacement, a displacement detection system based on semiconductor laser with single mode optical fiber output and 2-D position sensitive detector(PSD) was developed to suppress ambient light noise effectively. The output power of laser was sinusoidally changed when injection current was modulated with 1kHz. The desired signals from PSD which is illuminated by the modulated light source are demodulated from the noise with phase-sensitive detection technique. In the signal processing circuit, using phase sensitive detection technology, the output alternating current signal of detector was demodulated and spot energy center position was gotten. Therefore, the disturbance of background light was eliminated. The results show that the measuring accuracy is better than 1μm. The study is helpful for multi-degree-of-freedom errors measurement.