We describe the construction of an inexpensive iodine spectrometer with a homemade iodine vapour cell and a self-developed wavemeter based on the Pohl interferometer, around the 670 nm wavelength. This can be easily realized in an undergraduate teaching laboratory to demonstrate the use of a diode laser interferometer using a Pohl interferometer and measurement of the wavelength using image processing techniques. A visible alternative to the infrared diode lasers, the 670 nm diode laser used here gives undergraduate students a chance to perform comprehensive though illustrative atomic physics experiments including the Zeeman effect, the Hanle effect, and the magneto-optic rotation effect with a little tweaking in the present spectrometer. The advantage of the spectrometer is its ease of construction with readily available optics, electronics, evacuation and glass-blowing facilities, and easy analysis algorithm to evaluate the wavelength. The self-developed algorithm of raster scanning and circular averaging gives the researcher insight into the basics of image processing techniques. Resolution approaching 0.5 nm can be easily achieved using such a simple setup.