This paper presents the development of a magneto-optical encoder for higher precision and smaller size. In general, optical encoders can have very high precision based on the position information of the slate, while their sizes tend to be larger due to the presence of complex and large components, such as an optical module. In contrast, magnetic encoders have exactly the opposite characteristics, i.e., small size and low precision. In order to achieve encoder features encompassing the advantages of both optical and magnetic encoders, i.e., high precision and small size, we designed a magneto-optical encoder and developed a method to detect absolute position, by compensating for the error of the hall sensor using the linear table compensation method. The performance of the magneto-optical encoder was evaluated through an experimental testbed.