We report on an interferometer designed to provide 1-10 nm/square root(Hz) displacement measurement resolution, in the range 0.01 Hz to 1 Hz, while in low Earth orbit. The interferometer comprises two units, each with its own laser and in separate satellites, which would be in the same orbit separated by approximately 50 km. We discuss the requirements on the interferometer subsystem and describe the optical transponder distance measurement, including a phase locking method to generate a heterodyne beat signal between the two lasers. Design, fabrication, and testing of a "flightlike" engineering model interferometer is outlined, and results from environmental and performance tests are reported.