The use of light emitting diode reflective distance sensors (LED-RDS) for high-resolution displacement measurement is a cost-effective and inherently safe alternative to sensors using lasers and optical fibers. Experimental testing shows that a variety of distance ranges are achievable depending on the geometry of the LED-RDS chosen. The use of an LED-RDS without focusing lens offers higher resolution, making it suited to measure displacements in the micrometer range. Results from testing the SFH9206 on a target with a modest reflectivity of 31% indicate that the LED-RDS offers sensitivity of 52.8 %/mm, over a linear range of 540 μm . With a focus on LED-RDS with GaAs-based LEDs, thermal drift of the sensors is theoretically modeled and compensation circuitry proposed. Results for the SFH9206 show the thermal drift to be linear, and the compensation circuitry effective, between 25 °C and 35 °C. As a consequence, at room temperatures, the compensation circuitry also reduces the noise, as measured by the Allan deviation and standard deviation. With a 3-dB bandwidth of 5.56 Hz, the compensation circuitry gives an LED-RDS signal with resolution below 1 μm . LED-RDS are mass produced and primarily find their application as source/detectors in encoders and barcodes scanners and as position sensitive devices in mobile robots. This paper suggests that LED-RDS also have the potential for analogue displacement measurements at high resolution.