We propose a sinusoidal phase-modulating laser diode interferometer for measuring small angular displacement. The interferometer is based on a Fabry-Perot plate. It has a simple structure and is insensitive to external disturbance. Sinusoidal phase-modulating interferometry is used for improving the measurement accuracy. A charge-coupled device (CCD) image sensor is used for measuring the distance between the reflected beams from two faces of the Fabry-Perot plate. From the distance, the initial angle of incidence is calculated. Compared with Michelson interferometers and autocollimators, this interferometer has the advantage of compact size and simple structure. The numerical calculation and experimental results verify the usefulness of this novel interferometer. © 2004 Society of Photo-Optical Instrumentation Engineers.