A new method is proposed for measuring interstory drift, the shifting of floors relative to one another when a building undergoes wind or earthquake loading. A free-space crosshair beam is projected from ceiling to floor onto a square of four position-sensitive photodetectors. Every lateral position and torsional angle gives a unique set of voltages at the photodetector outputs; thus, as the floors shift with respect to one another under load, detector voltages vary, the new beam axis location is determined, and the 2-D interstory drift is obtained. The theory of operation and a quasi-static verification of the method using micropositioning stages to provide input displacements are reported. Lateral positions, including translational and rotational components, are calculated from the photodetector outputs, and show excellent agreement with input displacements. The overall performance of the sensor system is extremely linear and predictable, and appears robust enough for field deployment. It is envisioned that some day it could serve as the input to an active control system used to stabilize smart buildings experiencing earthquake and wind loads.