Apparatus for measuring displacement between two members. A scale is provided on one member and has an incremental pattern with at least one reference mark embedded in it. A read head is provided on the other member and comprises a periodic diffraction means for interacting with a light pattern modulated by the incremental pattern on the scale to produce interference fringes having movement relative to said readhead responsive to said displacement, first detecting means for detecting the movement of the interference fringes, imaging means for imaging the reference mark and second detecting means for detecting the image of the reference mark.