Abstract: A novel nanometer displacement measurement system is investigated. A birefringence element is inserted into the resonance cavity of a He-Ne laser to generate the frequency split effect which changes the original single mode laser into an orthogonally polarized dual-frequency laser whose frequency difference of o-ray and e-ray is variable. The reflective surface placed out of the laser cavity moving along the laser axial can modulate the intensity of the laser by reflecting the output beam back into the cavity. These new phenomena can be used to realize the high resolution and non-contract measurement of displacement. A novel subdivision method which can break through the diffraction limit (half wavelength) is also proposed. The ideal resolution of the system is around 79 nm for He-Ne laser with 633nm wavelength. The achievements in the research have set the foundation for the laser feedback interferometer development.