A GPS transponder system incorporating a phase error monitoring and compensation subsystem. The phase error monitoring and compensation subsystem includes a demodulator subsystem that demodulates modulated carrier signals being output from each one of a pair of GPS transponders to obtain the navigation codes being generated by each of the transponders from their respective carrier signals. The navigation codes obtained from the modulated carrier signals are compared to separate navigation codes that are generated by a navigation data unit (NDU) of the system and supplied over a thermally stable signal transmission line. The signal transmission line has a known, fixed delay and is not affected by temperature changes that affect the modulated carrier signals. A phase comparator subsystem uses the comparison to generate needed error correction signals that are applied via phase shifters to each of the transponders. The error correction signals modify the modulated carrier signals to remove the influence caused by temperature variations that the transponders experience during operation.