This paper presents a digital interpolation module for high-resolution sinusoidal encoders. The proposed strategy performs phase-shifting manipulation on the sinusoidal encoder signals, and takes advantage of the linear sections of the absolute values of the phase-shifted sinusoidal signals. Thus, an approximately linear signal is obtained, from which the displacement can be linearly determined. Simulation result shows that the theoretical error of the proposed interpolate strategy is within 0.072° over the 360° signal period. Furthermore, a digital interpolation module is developed by implementing the interpolate strategy in a field-programmable gate array (FPGA), and performance evaluation experiments are carried out by applying it to a linear optical encoder with a pitch of 20 μm. The effectiveness of the digital interpolation module has been validated by both simulation results and experimental results.