A grating interferometer based on the wavelength-modulated phase-shifting method for displacement measurements is proposed. A laser beam with sequential phase shifting can be accomplished using a wavelength-modulated light passing through an unequal-path-length optical configuration. The optical phase of the moving grating is measured by the wavelength-modulated phase-shifting technique and the proposed time-domain quadrature detection method. The displacement of the grating is determined by the grating interferometry theorem with the measured phase variation. Experimental results reveal that the proposed method can detect a displacement up to a large distance of 1 mm and displacement variation down to the nanometer range.