To address the problem of oil pollution reducing the accuracy and reliability of displacement sensor under service condition, this article studies the oil pollution error analysis and suppression method of grid scale based on an absolute time-grating sensor. Firstly, the measuring principle of the absolute time-grating sensor is described. Secondly, the mathematical theory model and the electric field simulation model of grid-scale oil pollution are formulated. The theoretical and simulation analysis shows that the uniform oil pollution has no effect on the sensor, the non-uniform oil pollution mainly introduces the first harmonic error, and the error increases with the increase of the thickness and width of the oil pollution. Finally, an experimental platform is set up to verify the correctness of the above theoretical analysis. Meanwhile, the differential structure is proposed, which effectively inhibits the first harmonic error and improves the anti-fouling ability of the sensor. The study of the error effect caused by oil pollution is of great significance to improve the environmental adaptability of sensors and also provides a theoretical basis for improving the long-term reliability of sensors and enhancing environmental adaptability.