An improved gauging precision was achieved with a laser extensometer by adding a spatial modulation to the scanning beam with phase detection signal processing. This laser extensometer demonstrated an electronics limited gauging precision of ±45 x 10-6 inch for diametral measurements on 0.430-inch reactor fuel cladding samples.** An analysis of the projected accuracy, limited by the optical detector noise and phase detection error, indi-cated a theoretical resolution limit of 1 x 10-6 inch. The modulation of the scanned beam produces an extensometer response with a reduced sensitivity to the sample optical sharpness and beam spot size, and allows sample motion in the 0.1 inch range with no loss of gauging precision. Since the modulation is essentially an electro-optical vernier on the interrogating/scanning beam, it can be applied to any gauging or sensing problem where edge sensing is the basic concept. This paper presents a description and analysis of this modulation concept.