Due to the low measurement precision, small measurement range and low stability of traditional displacement sensors, this paper propose and implement a displacement sensor based on varied line-space grating, with the displacement characteristic test and the error problems in the measurement process are accomplished and analyzed, respectively. In the experiment, the varied line-space grating is placed on the electric displacement platform. The incident position of the light spot is controlled by adjusting the displacement of the platform. Besides, the correlation between the grating displacement and the wavelength of the reflection spectrum first-order diffraction center is established to realize the wavelength coding of the displacement. The platform movement range is 0~20 mm, with step length of 2 mm, and the round trip repeated measurement is made for 6 times. The central wavelength at each shift point is recorded and the displacement characteristics of the sensor are calibrated. Based on the error analysis of the central wavelength data generated by repeated measurements at each shift point, the standard deviation of multiple measurements at each point is analyzed by using Bessel formula combined with the Pieters method. The reliability of the data is further determined by combining with the 3σ criteria. The experimental results show that the sensor system has no systematic error and gross error. Also, the wavelength and displacement of the sensor change linearly, and the linearity of multiple repetitions is better than 0.994 6. The average displacement sensitivity of the sensor’s full range is 16.67 nm/mm. The content of this paper can provide a certain research reference for displacement sensing system based on varied line-space grating.