In an alignment sensor of a lithographic apparatus, position sensing radiation is delivered to a target (P1). After reflection or diffraction from the target, position sensing radiation is processed to determine a position of the target. Reference radiation interferes with the position sensing radiation) while a relative phase modulation is applied between the reference radiation and the position sensing radiation. The interfering radiation includes a time-varying component defined by the applied phase modulation. The interfering radiation is delivered to two photodetectors in such a way that each photodetector receives said time-varying component in anti-phase to that received at the other photodetector. A difference signal (i(t)) from said photodetectors contains an amplified, low noise version of said time-varying component. This is used in determining the position of the target. Mode matching enhances interference. Surface scattered radiation is rejected.