In this paper, we propose an evaluation index for optical circulator noise and explained the principle of laser heterodyne interference. Then, we establish a noise transfer model for a typical circulator in the displacement measurement by laser interferometry systems. In addition, in combination with the noise source of the circulator, we demonstrate the influence of the nonlinear error coefficient of the circulator and the phase of stray light on the displacement measurement error. Furthermore, we propose an error evaluation method with the circulator directivity as the noise evaluation index and verified its applicability by numerical simulation. Aiming at the main source of noise of the circulator, a kind of point diffraction spatial optical circulator is designed and developed based on theoretical analysis model. This circulator has a directivity of 129 dB, the directivity of circulator is 66 dB higher than that of typical commercial circulator, thus achieving high-precision measurement of target displacement.