In this research paper, a precision position-measurement system based on the image grating technique is presented. The system offers a better robustness and flexibility for 1D position measurement compared to a conventional optical encoder. It is equipped with an image grating attached to a linear stage as the target feature and a line scan camera as the stationary displacement reader. By measuring the position of the specific feature in the image and applying a subpixel image registration method, the position of the linear stage can be obtained. In order to improve the computational efficiency, the calculations for pattern correlation and subpixel registration are performed in the frequency domain. An error compensation method based on a lens distortion model is investigated and implemented to improve the measurement accuracy of the proposed system. Experimental data confirms the capability of the developed image grating system as ±0.3 µm measurement accuracy within a 50 mm range and ±0.2 µm measurement accuracy within a 25 mm range. By applying different optics, the standoff distance, measurement range, and resolution can be customized to conform to different precision measurement applications.