Presented is a critical study of the parameters of a grating imaging system when it is used as a displacement sensor. The images of a periodic object placed upstream and in close vicinity of the pupil transmission grating are produced with an extremely high magnification. A study of the image contrast as a function of the periods of the object and pupil gratings, their size and the polychromaticity of the illuminating source has been made to ascertain the optimum sensor parameters. The sensitivity of displacement measurements has been estimated to be 0. 01 mu m over a measuring range of plus or minus 1 mu m around the zero level.