An important new approach for vehicle guidance and control is based on the use of compact, low-mass, low-cost sensors integrated with the vehicle structure. Many advantages of this approach lead to new capabilities. However, the development of compact guidance and control sensors leads to a variety of fundamental physical problems associated with sensor sensitivity and noise. For example, as sensor size is reduced, it becomes necessary to improve the sensitivity of the sensor signal detection mechanism. These challenges to sensor development will be described. Recent developments at JPL, based on new position sensor principles such as electron tunneling, have produced a series of novel, ultra-high sensitivity micro-sensors and micro-instruments. Included among the applications demonstrated, are a high sensitivity micro-accelerometer and micro-seismometer. In this paper, the fundamental limits of conventional position sensors will be discussed and a new position sensor for advanced accelerometers will be described.