The Nanogate is a micro electro mechanical systems (MEMS) device that uses a cantilever structure to control the separation between two extremely flat surfaces. It has been proposed that the Nanogate be used as part of a nanoscale instrument for studying the behavior of fluids at the molecular scale. This thesis describes the development of an integrated capacitive displacement sensor which enables nanometer precision measurement of the separation of the surfaces of the Nanogate. The work in this thesis can be divided into two parts: fabrication of a new version of the Nanogate and the development of electronics for the capacitive sensor. The fabrication part involved redesigning the Nanogate package and fabrication process to integrate the capacitive sensing electrodes, as well as to improve the process yield. The development of capacitive sensing electronics for the Nanogate involved the design of an analog front-end to convert capacitance to voltage and a custom high precision data acquisition system to digitize the output. The measured capacitance is converted back to absolute displacement by calibration with a Michelson interferometer-based displacement sensor. The results show a resolution better than 0.1 nm and the long term drift error is less than 1 nm.