This paper presents a method for measuring five-degrees-of-freedom errors of a moving stage with a monolithic prism and phase-sensitive detection technique. It consists of a pigtailed laser diode, three position-sensitive detectors (PSDs), a monolithic prism, and additional optical and electronic components. The monolithic prism mounted on the moving stage generates three beams that are detected by three PSDs, respectively, so that the straightness, pitch, yaw, and roll errors can be simultaneously measured. Theoretical analysis of each error measurement process is presented. To reduce the influence of disturbing light, the laser diode is modulated by a sinusoidal wave current, and a phase-sensitive detection technique is developed to demodulate the signals. Compared with a laser interferometer, the deviation errors when measuring the horizontal and vertical straightness errors are better than ±0.25 and ±0.4 μm, respectively. The deviation errors for the pitch, yaw, and roll are better than ±0.5, ±0.3, and ±2 arc sec, respectively, in comparison with an autocollimator. The system can be assembled to measure five error components of machine tools in an industrial environment.