Abstract: With the continuous advancement of industry toward automation, intelligence, and high precision, there are growing demands for improved accuracy, real-time performance, and reliability in displacement measurement technologies. As a key method in this field, homodyne laser interferometry is characterized by its non-contact measurement process and high traceability, leading to increasingly widespread application. Phase subdivision technology enables laser interferometers to achieve high resolution over a large measurement range. However, the presence of nonlinear errors significantly restricts the use of homodyne interferometers. Starting from the signal characteristics of homodyne interferometers, this paper analyzes existing errors in the orthogonal sinusoidal-cosinal interference signal pairs of homodyne interferometers. This article reviews research on the distortion of displacement measurement results due to signal errors compared to the actual displacement (nonlinear error) and the causes of nonlinear errors. Furthermore, the recent developments in correcting nonlinear errors in homodyne interferometers are summarized. Finally, the trends in signal processing technology for homodyne laser interferometers are outlined and future prospects are discussed.