We present an optical encoder to report the insertion depth of surgical needles with sub-millimeter resolution. The work pertains to robot-assisted percutaneous needle placement applications. The motivating application is prostate brachytherapy, a procedure to permanently implant radioactive seeds into the prostate to eradicate cancer. Independently, we developed multiple robotic needle placement systems involving a motorized needle driver with axially loaded friction transmission and also a fully manual needle driver. Both needle driving approaches require encoding the depth of needle insertion. The implant needles have a pattern with reflective and non-reflective stripes of 5 mm in length. To achieve sub-millimeter encoding accuracy, a method based on a linear sensor array has been developed. It yielded a compact and robust optical encoder that is low-cost and potentially disposable. Custom hardware was prototyped, including light source, linear array sensor, needle guide, microcontroller, and USB interface