The optical feedback characteristics in a Zeeman-birefringence dual-frequency laser are studied during the laser cavity tuning in three different kinds of optical feedback conditions: (i) only //-light is fed back; (ii) only (┴)-light is fed back; (iii) both lights are fed back. A compact displacement sensor is designed using the experimental result that there is a nearly 90 degrees phase delay between the two lights’ cosine optical feedback signals when both lights are fed back into the laser cavity. The priority order that the two lights’ intensity curves appear can be used for direction discrimination. The resolution of the displacement sensor is at least 79 nm, and the sensor can discriminate the target’s moving direction easily.