A new form of interferometry combining high phase sensitivity and excellent mechanical isolation is proposed and demonstrated. These features arise from maintaining a probe and reference tone in the same medium under test at all times, their ultimate homodyne detection, as well as a novel method employing an optical programmable filter which is used to extract their relative phase difference. A compilation of studies performed to illustrate the applicability of the scheme to a range of measurements of optical propagation characteristics is presented. Measurements include the chromatic dispersion of SMF‐28 of lengths ranging from 1 m to 1 km, the nonlinear coefficient of highly nonlinear fiber and the phase transfer profile of an integrated optical ring resonator.