A small-displacement sensing system based on multiple total internal reflections in heterodyne interferometry is proposed. In this paper, a small displacement can be obtained only by measuring the variation in phase difference between s- and p-polarization states for the total internal reflection effect. In order to improve the sensitivity, we increase the number of total internal reflections by using a parallelogram prism. The theoretical resolution of the method is better than 0.417 nm. The method has some merits, e.g., high resolution, high sensitivity, and real-time measurement. Also, its feasibility is demonstrated.