Incremental optical encoder measures length and angle based on the principle of moiré fringes. The eccentricity and shaking of two disks′ axis may affect the phase of moiré fringes signal detected by encoder readout. This phase error may cause systematic error on angle measuring. According to the elementary theory of two grating disks forming moiré fringes, an improved model of optical encoder was proposed, and theoretical formula on phase of moiré fringes taking account of shaft eccentricity was deduced. This phase error caused by shaft eccentricity, the principle of designing incremental optical encoder and dispelling the systematic error were analyzed and discussed.