An interferometer based optical sensor for displacement measurement is reported. This method requires quite simple signal processing as well as least electronic components. Referring to this technique, two photodiodes spatially shifted by 90 degrees were used. The output of photodiodes was converted into rectangular signals which were extracted in LabVIEW using the data acquisition card without using an analog to digital converters (ADC). We have also processed the signals in C++ after acquiring via parallel port. A Michelson interferometer configuration was used to produce linear fringes for the detection of displacements. The displacement less than 100 nm could be measured using this technique.