A novel optical incremental and absolute encoder based on an optical application-specific integrated circuit (opto-ASIC) and an encoder disc carrying micro manufactured structures is presented. The physical basis of the encoder is the diffraction of light using a reflective phase grating. The opto-ASIC contains a ring of photodiodes that represents the encryption of the encoder. It also includes the analog signal conditioning, the signal acquisition, and the control of a light source, as well as the digital position processing. The development and fabrication of the opto-ASIC is also described in this work. A laser diode was assembled in the center on top of the opto-ASIC, together with a micro manufactured polymer lens. The latter was fabricated using ultra-precision machining. The encoder disc was fabricated using micro injection molding and contains micro structures forming a blazed grating. This way, a 10-bit optical encoder with a form factor of only 1 cm 3 was realized and tested successfully. validation, J.S., A.B., A.F., and C.S.; formal analysis, J.S., A.B., A.F., and C.S.; investigation, J.S. and A.F.; resources, A.Z. and J.B.; writing-original draft preparation, J.S., A.B., and A.F.; writing-review and editing, K.-P.F. and C.S.; visualization, J.S.; supervision, A.Z. and J.B.; project administration, J.S. and A.F.; funding acquisition, J.