Self-interference digital holography (SIDH) can image incoherently emitting objects over large axial ranges from three two-dimensional images. By combining SIDH with single-molecule localization microscopy (SMLM), incoherently emitting objects can be localized with nanometer precision over a wide axial range without mechanical refocusing. However, background light substantially degrades the performance of SIDH due to the relatively large size of the hologram. To optimize the performance of SIDH, we performed simulations to study the optimal hologram radius (Rh) for different levels of background photons. The results show that by reducing the size of the hologram, we can achieve a localization precision of better than 60 nm laterally and 80 nm axially over a 10 µm axial range under the conditions of low signal level (6000 photons) with 10 photons/pixel of background noise. We then performed experiments to demonstrate our optimized SIDH system. The results show that point sources emitting as few as 2120 photons can be successfully detected. We further demonstrated that we can successfully reconstruct point-like sources emitting 4200 photons over a 10 µm axial range by light-sheet SIDH.