A laser diode with the laser intensity and optical frequency altered by external optical feedback is often called as a self-mixing laser diode (SMLD). It can be used as a sensor for measuring various geometric parameters. This paper presents an SMLD design for micro-displacement measurement. The laser diode (LD) is modulated by the injection current in a form of triangular waveform and installed on a mechanic scanning device. The target to be tested and the SMLD forms the external cavity. The light reflected by the target contains the distance/displacement information. The information is carried within the laser intensity and can be pickup by a photo diode (PD) packaged in the rear of the SMLD. We call this laser intensity as self-mixing interferometric (SMI) signal. A new algorithm is developed to retrieve the micro-displacement from the SMI signal. Simulation results show that the proposed design is able to accomplish the measurement of displacement under weak feedback with high resolution and great accuracy.