Optical encoders are widely used in accurate displacement measurement and motion-control technologies. Based on different measurement methods, optical encoders can be divided into absolute and incremental optical encoders. Absolute linear encoders are commonly used in advanced computer numerical control (CNC) machines. The subdivision error within one signal period (SDE) of the absolute linear encoder is vital to the positioning accuracy and low velocity control of CNC machines. In our paper, we study the working principle of the absolute linear encoder. We proposed two methods for reducing the SDE of the absolute linear encoder, a single-field scanning method based on the shutter-shaped Moiré fringe, as well as a method for suppressing harmonics through a phase shift of index grating. We established a SDE measuring device to determine the absolute linear encoder’s SDE, which we measured using a constant-speed approach. With our proposed methods, the SDE was reduced from ±0.218 μm to ±0.135 μm, which is a decrease of 38.07%. Our fast Fourier transformation (FFT) analysis of the collected Moiré fringe signals demonstrated that the third-, fifth-, and seventh-order harmonics were effectively suppressed.