In the fields of robotics, machine tools and spacecraft, measurement of the gear angular position lays the foundation for closed-loop positional feedback. In this article, an angular displacement sensor based on the tunneling magnetoresistance (TMR) effect is proposed for the precise measurement of angular displacement. The developed sensor mainly consists of a TMR element, a signal conditioning circuit, a permanent magnet and some necessary assembly components. The TMR element is composed of eight magnetic tunnel junctions, which are arranged according to the dual-full bridge structure with a spatial electric angle difference of pi/2. Signals containing time information and space information are obtained after the sinusoidal and cosine voltages signals are respectively connected in two bridges. The signals are processed by a signal conditioning circuit, and then the angular displacement is measured by counting the clock pulses. The structure, working principles and signal conditioning method of the sensor are presented in detail. Moreover, a sensor prototype and a conditioning circuit are designed for actual experiments, according to the measured gear with a modulus of 1 and tooth number of 240. The prototype sensor has a theoretical resolution of 0.00001 degrees. The experimental results show that the prototype sensor has a working stability of +/- 0.00023 degrees within 1 h, and its measurement accuracy is -0.0008611 degrees to 0.001361 degrees in the measurement range from 0 degrees to 360 degrees. Therefore, the proposed sensor can be applied to the highly precise measurement of angular displacement.