A disk drive is disclosed comprising a disk having a plurality of data tracks defined by a plurality of servo sectors, wherein each servo sector comprises a Gray coded address representing at least part of a track address. The disk drive further comprises a head actuated over the disk for detecting a first Gray coded address in a first servo sector. A second Gray coded address is generated in response to the first Gray coded address. The first Gray coded address is decoded into a first binary address, and the second Gray coded address is decoded into a second binary address. One of the first and second binary addresses closest to a target address is selected, and the head is positioned in response to the selected binary address.