A novel laser heterodyne interferometer used for on-line measuring surface roughness has been developed. It features compact volume (25 cm×20 cm×10 cm) and excellent immunity to environmental disturbances. The system employs a frequency-stabilized laser diode. The design of common path makes the measurement beam and the reference beam incident on the surface along the same way. The processing method of heterodyne signals combines integer measurement with fraction period measurement, so it has wide dynamic range and high resolution. In addition, critical angle method is introduced for automatic focusing. The height and lateral resolutions of the system are 0.39 nm and 0.73 μm respectively. The maximum range of automatic focusing is ±0.5 mm and the focusing accuracy is 1 μm within ±25 μm of the focus. The stability during 80 minutes is 1.95 nm (3σ).