The installation errors leaded by deflections from two axes of a measured encoder and a reference encoder were researched in the process of dynamic measurement to improve the accuracy and reliability of photoelectric encoders. The effect of installation errors on measurement accuracy of the measuring accuracy of the measured encoder was analyzed and the installation error formula and a error control range formula were derived. To reflect the actual measuring accuracy of the encoder by encoder dynamic measurement, the allowed ranges of the maximum deflection αmaz and the maximum height difference Dmax were given. The measurement experiments were performed based on a 21 bit reference encoder to measure 15 bit encoders, and measuring results and error curves were compared and analyzed under conditions of little, small, and severe deflections. Experimental results show that the installation deflection should be controlled lower than 0.36° for ensuring the measurement effectiveness of 15 bit encoders, The error formula and error control strategy proposed in this paper can be applied to different kinds of measurement systems with different accuracies and they have a great value to improve the accuracy and reliability of photoelectric encoder measurement.