When photoelastic modulators (PEMs) are used with lasers as light sources, modulated interference effects may appear as spurious signals at the fundamental and harmonic frequencies of the PEM. They are correlated with the modulator reference signal and are at precisely the same frequencies as the polarization modulation effects being studied. This modulated interference does not appear to be a problem with any light source other than lasers. The modulated interference effects arise because of interference between light reflected at the surfaces of the modulator optical element and the primary beam and relative motion of these two surfaces synchronized with the modulator oscillations. Interference in modulator optical elements, which is similar to multiple beam interference in thin films, is examined. Criteria for estimating the strength of the modulated interference are presented and a simple test for the presence of modulated interference in an optical system that includes a PEM is described. Several strategies are presented for reducing or eliminating these troublesome effects including (1) careful positioning of the PEM, (2) use of antireflective (AR) coatings, and (3) techniques that physically separate the primary beam from multiple reflected beams. Data are given for suppression of the modulated interference by using AR coatings and for one method of beam separation.