In this paper, a new kind of rotary encoder based on magneto-optical storage method is proposed. By using this method, a rotary encoder with small size, high accuracy and high response can be realized. MO encoder is more advantageous than a magnetic scale and optical encoder according to its high response and its high accuracy, respectively. High accuracy can be achieved by rerecording, therefore the error is corrected. Following issues are described: (1) A device for record, playback and evaluation of accuracy of MO encoder has been developed. (2) A necessary condition for record and playback for MO encoder was experimentally derived. (3) The MO encoder made for trial purposes was recorded by 2250 pulses per revolution directly from the referential encoder, as a result, accuracy of 2.5" and reproducibility of 0.079" were achieved.