An optical encoder based on the Lau effect is presented. It is shown that this system has several advantages over standard optical encoders based on the moire effect, such as smaller sensitivity to variations in the gap between gratings and higher design simplicity. Problems due to the quality of the collimated beam, which are present in moire- effect-based encoders, are also avoided. Two different optimized designs for different resolutions are presented. Experimental measurements, in good agreement with the model developed by us, are presented.