A prototype of a new optical length transducer is presented. The system is based on a laser diode illumination and a holographic grating applied as a length master. The theory of the optical method is formulated using Doppler description. General characteristics of the device construction and metrological feasibilities of the prototype are presented. Resolution of 0.02 μm and nonlinearity error ±0.05 μm in the measuring range of 4.5 mm are obtained.