The performance of differential grating displacement sensor is determined by its mechanism parameters. And the mechanism parameter choice follows specific rules in the process of its design. A set of parameter design rules of differential grating displacement sensor was summarized based on systematic mathematical calculation. It included resolution rule, precision rule, amplitude rule, and waveform rule. These rules could undoubtedly help to optimize resolution, precision, amplitude and waveform of this kind of sensor, and could further help to avoid aimless sensor design and those design consequence of bad waveform, poor amplitude, or even no signal output. And this research method could be used as the references by other sensor design.