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In this study, an improved inductive pickup coil and an electro-optic type displacement transmitter has been proposed. A modified differential inductance bridge network has been used to generate electrical signals and Mach-Zehnder interferometer (MZI) converts an electrical signal into an optical signal. The sensitivity of the sensor part of the transducer is very good because of two parallel magnetic paths for the inductive pickup. The theoretical equations explaining the operation of the transducer are derived. The proposed transducer is tested experimentally to obtain the static characteristics. The characteristics of the MZI-based displacement transmitter have been observed by using PC-based Opt wave Opti-BPM.v.9 simulation software in the linear zone. The experimental and simulated results are reported in this study. Very good linear characteristics of the transducer with adjustable sensitivity have been observed. The transmitter output in the form of normalised intensity of light is also found to be linearly related with displacement. The theoretical equations derived in this are found to support the experimental characteristics to a very good extent. [ABSTRACT FROM AUTHOR]