In response to the engineering, miniaturization, and high measurement accuracy requirements of encoders, this paper proposes a new type of absolute photoelectric encoder based on a position-sensitive detector (PSD). It breaks the traditional encoder’s code track design and adopts a continuous and transparent code track design, which has the advantages of small volume, high angle measurement accuracy, and easy engineering. The research content of this article mainly includes the design of a new code disk, decoding circuit, linear light source, and calibration method. The experimental results show that the encoder designed in this article has achieved miniaturization, simple installation and adjustment, and easy engineering. The volume of the encoder is Φ50 mm × 30 mm; after calibration, the resolution is better than 18 bits, and the accuracy reaches 5.4″, which further demonstrates the feasibility of the encoder’s encoding and decoding scheme.