Electronic control systems using microprocessors for construction machines have been increasing rapidly in response to needs for safety and convenience on the part of operators. Sensors and actuators will play an important role in the proliferation of these systems.Recently, there has been a growing number of applications in which it is necessary to determine the displacement of hydraulic sensors. As a result, many types of sensor systems were developed for this type of application. However, so far there have been no systems capable of working well in construction machines due to these sensors having to be used under extremely severe conditions. Severe impact and high temperature conditions generated by compressed hydraulic oil ended up delaying the development of these systems. In response to these needs, the authors have developed a hydraulic cylinder equipped with a magnetic stroke sensor for use in heavy duty operations.The sensing principle is based on the use of a thin film magnetoresistive sensor incorporating a permanent magnet, along with specially tooled cylinder rod, consisting of a repeating pattern of grooves under a non-ferrous chrome-plated surface. As the sensor moves over each groove, the groove produces one pulse as the sensor output. The displacement of the cylinder can then be determined by counting these repeating pulses from the sensor. The attainment of high resolution and a wide operating temperature range is attributed to the development of a specially designed magnetoresistive sensor.This sensor system is characterized by the following features: (a) Resolution of 0.5 mm and digital output. (b) Operating temperature range of 243 to 373K. (c) Non-contact sensors result in a high gain factor plus durability. (d) The compact size results in favorable compatibility with standard cylinders of all sizes. This paper describes the development of this sensor system as well as hydraulic cylinder components.