This paper describes the design and prototyping of a compact optical head for detecting pitch deviation in scale gratings by exploiting variations in the diffraction angles, enabling on-machine calibration of the scale. Theoretically, this method allows pitch deviation to be evaluated independently of angular error motion in a scale-feeding system and local slope errors on a scale, owing to a differential arithmetic operation applied to two diffraction angles. Although the validity of the method was verified through experiments using a prototype optical head developed previously, it was too large to enable on-machine calibration of a scale integrated into a positioning system in precision equipment. To address this issue and proceed with the on-machine calibration of a scale, a palm-sized optical head was designed and developed, with dimensions of 60 mm × 35 mm × 35 mm. An experimental system using the newly developed optical head was constructed, and its basic characteristics were evaluated. Through experiments, the high adoptability of this method was demonstrated by its high stability, repeatability, and robustness, with a resolution of better than 0.001 nm and a repeatability of 0.004 nm for measuring the pitch deviation of a scale.