This Small Business Innovation Research (SBIR) Phase I project will investigate an ultra high-precision position sensing system, intended for next generation microelectronics production. Before a product prototype of this system can be developed, which is suitable for rigorous use in commercial manufacturing, design issues related to reliability, high speed capability, and manufacturability must be solved. The new system uses scanning probe microscope (SPM) technology and some reference scale such as a synthetic grating or an atomic layer of crystal. This unique combination, together with synchronized signal detection, is an innovation in the area of ultra high precision position sensing, which is basic to high precision positioning systems (XY stage control) in microelectronics manufacturing. Subnanometer precision (repeatability) has been demonstrated both in the height and lateral direction. Phase I will study the system design which fully utilizes the integrated micromachined sensor probe and actuator, establishing a dynamic model. Three areas of application are anticipated in commercial microelectronics manufacturing: 1)steppers, electron/ion beam lithography systems, mask aligners, and inspection systems for X-ray lithography; 2)inspection and manufacturing systems of high-precision X-ray optics and other high precision machining systems; and 3)servo writer control systems for computer hard disk and optical disk mass memory.