In the detection of photoelectric encoder's dynamic characteristics, the quick response and the precision of reference encoder affect detection accuracy. A high precision and fast subdivision angle reference encoder is designed to achieve fast reaction and high precision. Firstly, the influence of insufficient angle reference on the detection of encoder's dynamic characteristics is analyzed and time-delay is the main factor that influences the precision of angle reference encoder. Secondly, 23 bit angle reference encoder has been manufactured by structure and circuit devising. Lastly, the encoder error has been compensated by using RBF neural network with the detection of angle reference encoder. The encoder resolution is 15", and it can guarantee the output speed in accordance with the required resolution at speed of 10 r/s. The precision proves to be less than 0.6" while it was 1.30" before error compensation. The error of peak to peak value is 2.5". As the trails show, the developed reference encoder with the properties of high resolution, high precision and high real-time improves the detection precision of photoelectric encoder's dynamic characteristics.