Abstract The vibration measurement or monitoring of rotating machinery has been the most important method in fault diagnosis and analysis. The sensor plays an important role in measurement or monitoring systems. In this paper, the vibration sensor based on laser and Position Sensitive Detector (PSD) has been researched, it can supply a new measurement means with vibration of rotating machinery. The structure, measuring principle of position and vibration of the PSD are introduced. The current function expression of position coordinate and the corresponding detecting circuit drawings are given. Meanwhile, not only the factors affecting measurement accuracy of the sensor are analyzed, but also the method solving is proposed. Finally, the verification data and vibration waveform are provided. According to the test results, it indicates that all performances of this sensor can meet demands of measurement on rotor vibration of rotating machinery.