A diagonal-based heterodyne grating interferometer (HGI) for two-dimensional displacement measurement is presented. It can simultaneously realize the high signal contrast and signal-to-noise ratio (SNR) with the specially designed cross grating. Meanwhile, an eightfold optical subdivision can be acquired with the proposed phase decoupling method. The signal contrast of 96.55% and SNR of 50 dB are obtained with laser power of 0.45 mW. Several tests including linear displacement, planar displacement, and stability are conducted in the experiments. The theoretical resolution of 0.125 nm, the short-range repeatability of 2.35 and 3.24 nm under round-trip movement of 10 μm, and the system stability better than ± 4 and ± 6 nm over 10 min are achieved for the X- and Y-directions, respectively. In addition, the measurement errors including geometric, nonlinear, and noncommon-path errors are analyzed. The results demonstrate that the proposed diagonal-based configuration combined with cross gratings is extremely suitable for HGIs, which has the potential to simultaneously improve the performance and practicability of HGIs.