We have used the extreme sensitivity of electron tunneling to variations in electrode separation to construct a novel, compact displacement transducer. Electrostatic forces are used to control the separation between the tunneling electrodes, thereby eliminating the need for piezoelectric actuators. The entire structure is composed of micromachined silicon single crystals, including a folded cantilever spring and a tip. Measurements of displacement sensitivity and noise are reported. This device offers a substantial improvement over conventional technology for applications which require compact, highly sensitive transducers.