As a velocity feedback device, photoelectrical encoder was widely used in industry, aerospace, military and other fields. The precision and response influenced the whole system performance immediately. This paper studied velocity information arithmetic by using wavelet which reduced interference and noises. This arithmetic had been applied in a space encoder, improved the dynamic response of control system, accuracy in steady-state. This arithmetic was simple, less resource, short time consuming and universal, can be extended to other encoder. Meanwhile, this paper designed velocity detection system, to achieve the detection of precision. The experiments shown that: the velocity error was reduced from 6.956 (")/ms to 0.370 7 (")/ms, by using this arithmetic.