In the past, radial grating optical shaft encoders have generally provided the highest attainable resolution and precision for the measurement of angular rotation. These encoders employ relatively coarse gratings, and use incoherently illuminated Moire-type grating readout heads. A 24-bit version of such an encoder has an angular resolution of 0.4 microradians, is about 18-inches in diameter and generally somewhat fragile, and can be a major perturbation to the shaft to which it is attached. A precision laser-based angular measurement system has recently been developed in which the encoder is a cylindrical diffraction grating, and the readout head is replaced by a moving interference fringe pattern formed by beams from a stabilized 2-frequency HeNe laser. The sensor head is small, stable, and capable of angular resolution appreciably in excess of that provided by other currently available techniques. In this paper we describe a configuration in which a 600 line/mm grating on a 3 cm diameter shaft is used with two laser readout heads to independently measure both angular rotation and cross-axis wobble with a resolution and precision of better than 0.5 microradians. The sensor head is less than 2 cubic inches (30cm3) in volume. The laser beam is brought. to the sensor by polarization-preserving monomode fiber, and the optical signals are carried to detectors by multimode fibers. The maximum update rate and angular velocity are 225 KHz and 5 rad/sec respectively. By increasing the diameter of the cylindrical grating, the angular resolution can be increased proportionally: using the same grating and readout head with a 12-inch diameter shaft, a 28-bit incremental encoder can be achieved--having art angular resolution on the order of 20 narioradians.