We present a point-diffraction interferometer that has been specially devised to perform absolute distance measurements in three dimensions. It is composed of two main parts: One is a target that moves in three dimensions, and the other is a stationary two-dimensional array of photodetectors. The target is made of point-diffraction sources that emit two spherical wave fronts, whose interference is monitored by the photodetectors. Application of a phase-shifting technique allows the phase values of the photodetectors to be precisely measured, which are then fitted to a geometric model of multilateration so as to determine the xyz location of the target by minimization of least-squares errors. Experimental results show that the proposed diffraction interferometer is capable of measuring the xyz coordinates of the target with a volumetric uncertainty of less than 1.0 mum over a working volume of a 100-mm side. (C) 2002 Optical Society of America.