The optical properties of liquid crystal (LC) gratings with a mobile glass substrate, which can be used for optical displacement applications, were investigated. LC gratings are composed of homogeneous and twisted nematic domains. The displacement measurement principle is based on the change in diffraction efficiency induced by varying the mixing ratio of two orientation domains, in response to the lateral shift of the mobile substrate. Improved conditions for the polarization direction of incident light, as well as the application of voltage for achieving higher sensitivities, were explored. A simple demonstration of an LC-grating-based displacement sensor was also conducted.