We describe sources of error in a breadboard, low‐cost, time‐of‐flight laser rangefinder. The rangefinder deduces the range of a retroreflecting target by directing an intensity‐modulated laser beam at the target and measuring the phase difference between the returned and transmitted modulation envelopes. The phase measurement is performed by a combination of heterodyning and digital signal processing. We present an equation for the standard deviation of statistical errors generated by quantization in the digital signal processing. We show how both electrical crosstalk and stray light give rise to errors which are cyclic with target range, and we describe how these errors can be reduced. We demonstrate the importance of errors caused by the dependence of the photodiode’s propagation delay upon the intensity and placement of the light spot incident upon its surface, and discuss how the instrument’s optical components can be arranged to minimize such errors. Finally, we show that our rangefinder, using a modulation frequency of 140 MHz, has rms nonlinearity less than 85 &mgr;m.