A sinusoidal phase-modulating laser diode interferometer for wide range displacement measurement is proposed. To realize wide range displacement measurement, a signal processing method utilizing a look-up table to estimate the dynamic value of the effective sinusoidal phase-modulating depth is detailed, and the error caused by the residual amplitude modulation and the effective sinusoidal phase-modulating depth in wide range displacement measurement can be eliminated. It is discussed that the extended measurement range depends on the monotone intervals of several specific functions. The simulation and experimental results prove that the sinusoidal phase-modulating laser diode interferometer with the proposed method could realize centimeter level displacement measurement range.