In this paper, the laser feedback interference phenomenon is analyzed and discussed. The basic interference theory and signal processing technique are studied; some typical sensing applications are introduced. Laser feedback interference is different from other convertional interference. The optical feedback interference of semiconductor laser has many advantages in that optical system is much simple and is easily aligned; additional optical elements are not required. A compact sensor was constructed for the online measurement of the distance, displacement and velocity. It is a promising technique used in microelectromechanical systems (MEMS), optical engineering and other engineering application.