To meet the design requirements of integration, volume, and resolution for the signal readout circuit of optical encoders, this study analyzes the encoding principles of incremental and absolute optical encoders, based on the pseudo-random coding principle and Moiré fringe optical signal theory. A dedicated integrated circuit for high-resolution optical encoders, based on the incremental and pseudo-random mixed encoding scheme, is designed and fabricated. Utilizing a 350 nm CMOS process, full integration of the photodetector and readout circuitry is achieved. The chip size is only 4.6 mm×3.5 mm, with a resolution of up to 22 bit. It can simultaneously generate precise sine and cosine output signals within a signal period of 50 kHz, as well as output digital pseudo-random code signals at a clock frequency of 2 MHz, meeting the design specifications of the system.