Aiming at the problem that the oblique incidence of beam during the propagation of cascaded liquid crystal polarization gratings will change its ellipticity and reduce the diffraction efficiency, an optimization method of diffraction efficiency of cascaded liquid crystal polarization gratings based on polarization compensation is proposed. The effect of oblique incidence on retardation of liquid crystal polarization grating is analyzed by using extended Jones matrix. Combined with Stokes parameter, the ellipticity of liquid crystal polarization grating outgoing beam at different oblique incidence angles is analyzed. Based on the vector diffraction theory, the diffraction efficiency model of cascaded liquid crystal polarization gratings is established. Based on the liquid crystal molecular direction vector distribution, the coordinate system of liquid crystal variable retarder under oblique incidence is established. The influence of oblique incidence angle on retardation of liquid crystal variable retarder is analyzed, and the relationship between retardation and ellipticity is derived. By optimizing the operating voltage of liquid crystal variable retarder, the depolarization caused by oblique incidence is compensated to realize the polarization compensation of ellipticity. The experimental platform is set up to verify the accuracy of the theory and the effectiveness of the method. According to the measurement results, when the beam deflection angle is from -5° to 5°, the proposed method improves the diffraction efficiency of the cascaded liquid crystal polarization gratings by 3%~4%.