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This paper presents a new sensing system for home-based rehabilitation based on optical linear encoder (OLE), in which the motion of an optical encoder on a code strip is converted to the limb joints' goniometric data. A body sensing module was designed, integrating the OLE and an accelerometer. A sensor network of three sensing modules was established via controller area network bus to capture human arm motion. Experiments were carried out to compare the performance of the OLE module with that of commercial motion capture systems such as electrogoniometers and fiber-optic sensors. The results show that the inexpensive and simple-design OLE's performance is comparable to that of expensive systems. Moreover, a statistical study was conducted to confirm the repeatability and reliability of the sensing system. The OLE-based system has strong potential as an inexpensive tool for motion capture and arm-function evaluation for short-term as well as long-term home-based monitoring.