The invention discloses an orthogonal homodyne laser interferometer and a measurement method thereof. The interferometer is simple and reliable in structure, and comprises a helium-neon laser, a beam splitter prism, a lambda / 8 wave plate, a cubic pyramid prism, a measuring cubic pyramid prism, a precision guide rail, a photoelectric detector, a small signal amplification module, a band-pass filter module, an analog-to-digital conversion unit and a computer data processing unit. According to the invention, laser light emitting by the laser is split into reference light and measuring light after passing through the beam splitter prism, the measuring light firstly passes through the lambda / 8 wave plate and is then reflected by the measuring cubic pyramid prism so as to acquire a light beam, the light beam passes through the lambda / 8 wave plate again and generates interference with a reference light beam reflected by a reference cubic pyramid prism, and finally, two paths of orthogonal polarized light are acquired after passing through a polarization splitting prism; the photoelectric detector receives light signals and converts the light signals into electric signals, and signal conditioning is carried out by an amplification and filtering module; and the analog-to-digital conversion unit is controlled by a computer unit to acquire the conditioned electric signals, the phase is demodulated, and the real-time displacement of the measuring cubic pyramid prism is acquired and displayed.