For the purpose of improving the velocity measurement accuracy of photoelectric encoders, a velocity measurement method based on the signal of moire fringe is proposed. A velocity measurement model based on moire fringe is established using the total differential equations. The main factors affecting velocity measuring accuracy are analyzed and the influence of different factors is compared. An improved algorithm is deduced and the measurement system is established based on the velocity model. Measurement results on some 21- bit photoelectric encoder indicate that the root mean square of measurement error has reduced from 0.0367 rad/s to 0.0216 rad/s. This method can achieve fast and high-accuracy measurement, and be suitable for the control system requiring for high real-time capability.