Multi-degree-of-freedom (MDOF) displacement measurement Is needed In many application fields: precision machine control, precision assembly, vibration analysis, and so on. This paper presents a new MDOF displacement measurement method using a laser diode (LD), two position-sensitive detectors (PSDs), and a conventional diffraction grating. It utilizes typical features of a diffraction grating to obtain the information of MDOF displacement. MDOF displacement is calculated from the independent coordinate values of the diffracted ray spots on the PSDs. Forward and inverse kinematic problems were solved to compute the MDOF displacement of a rigid body. Experimental results show maximum absolute errors of less than ${\pm}10$ micrometers in translation and ${\pm}30$ arcsecs in rotation.