An ultra-miniature interferometric fiber-optic encoder readhead for sensing displacement of a very fine pitch scale grating is disclosed. The readhead includes a source grating that diffracts diverging source light into ±1st order beams, a pair of mirrors that reflect the ±1st order beams to converge toward the scale grating. The ±1st order scale light beams are reflectively diffracted back from scale grating to return to the mirrors, and are then reflected to converge back toward the light source and a set of adjacent fiber-optic receiver channels. An interference field generating grating positioned in front of the receiver channels produces interference fringes having a desired pitch. Movement of the interference fringes is sensed by the fiber-optic receiver channels to provide displacement information. The readhead may be configured so that primarily or only ±1st order light reaches the receiver channels.