Existing displacement sensors of micrometers to sub-micron precision are expensive and have various limitations. This paper reports the design and development of a new contact type compact micro-displacement sensor of sub-micron precision for a fraction of the cost of commercial devices. The basic concept of the new sensor system applies a mechanical magnifying mechanism to magnify a displacement at sub-micron to micron level and uses a low-cost Hall sensor to measure the magnified displacement. Various conceptual designs for the mechanical magnifying mechanism based on cascaded levers with flexural joints were studied and a final design, featuring side-by-side placement of lever structures in a multi-planar layout with adjacent levers coupled by L-shaped coupling foils, was devised. Prototypes of two different sizes and constructions with mechanical magnification ratios over 100 were made and tested. Measurement repeatability and accuracy to sub-micrometer level and a resolution down to hundredths of a micrometer were demonstrated by a compact Alpha Model prototype. Design modification of parts and a corresponding small lot size production procedure were devised to provide an estimated bill of material cost per unit under US$100.