This paper presents a comprehensive study of the design aspects of eddy-current displacement sensor (ECS) systems. In accordance with the sensor analysis presented in this paper, design strategies to compensate for important sensor imperfections are recommended. To this end, the challenges that are associated with ECS interfaces are identified, with focus on advanced industrial applications. This paper also provides a technical overview of the design advances of ECS interfaces proposed in the last decade and evaluates their pros and cons. Recently reported interface solutions for demanding industrial applications with respect to high resolution, stability, bandwidth, and low power consumption, at a sufficiently high excitation frequency, are addressed in more detail.