The scale of nano objects requires very precise position determination. The state-of-the-art manipulators involve accurate nanometer positioning. This paper presents the design of a capacitive displacement sensor for a nanopositioning application. The challenges of designing a capacitor sensitive to nanometer movements that fits in the area of a few hundred square micrometers are described. Analysis of several different designs was carried out using commercial simulation software. Results suggest a sensing resolution of 10 nm displacement. A sensor prototype was fabricated and tested.