We are developing scanning beam interference lithography (SBIL) for writing and reading large gratings with nanometer level distortion. Our distortion goals require fringe locking to a moving substrate with subnanometer spatial phase error while measuring and controlling the fringe period to approximately one part per million. In this article, we describe the SBIL optical system design along with some major subsystems. The design incorporates measurements and controls of the parameters that limit the accuracy of our system. We describe in detail a novel image metrology scheme, which uses interferometry to measure in situ both the period and the phase of the grating image formed by the interference of two laser beams. For a grating period of approximately 2 mum, experiments demonstrate a period measurement repeatability of three parts per ten thousand, one sigma. Phase measurement indicates a slow fringe drift at 0.25 mrad/s. Both the repeatability error and the phase drift are expected to improve by about three orders of magnitude after several improvements including the installation of an environmental enclosure and thermally stable metrology frames.