The successful implementation of advanced lithographic systems into high volume semiconductor fabrication has been hampered by the inability to monitor overlay using actual production wafers. While electrical probe techniques provide the necessary precision to characterize a lithographic system, special wafers and masks or reticles are required. This paper describes a new overlay measurement system (hereafter referred to as OMS) developed to use small targets placed on actual production wafers and masks or reticles. Using a simple detection scheme and a standard microscope, the system can rapidly measure up to 1000 sites per wafer. The system is designed for a precision of better than 0.05 microns (3σ) and measurement time between 1.5 and 3 seconds (including travel) per site. The system software can present vector plots as well as individual error coefficients. Resultant distortion, alignment, and magnification errors are calculated to aid in the optimization of the stepper or scanner system overlay.