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This paper presents the fundamentals, design, realization, and characterization of a state-of-the-art microwave (muW) based proximity sensor (PS) for position detection of stationary or moving targets in industrial applications. PS using established sensing technologies (inductive, capacitive, magnetic, optical, ultrasonic, etc.) have a large utilization range in rugged industrial environments and are able to fulfill the tough specific requirements. On the other hand, every version has specific weaknesses, which dramatically limit the application fields. Microwave technology is established in many sectors except for factory automation. In this study, we describe a prototype implementation of muW technology in an industrial PS for this field. The result represents an upgrade from the sensors based on the classical operating modes. The degree of novelty consists in the determination of the specifically addressed difficulties, new ideas, and the description of the original solutions to adapt the muW technology to PS demands. Basically, this paper refers to a binary version of the muW-PS. This version provides a switching output signal dependent on the relation between the actual distance and the programmed switching point. The majority of the gained facts are also usable for analog versions which convert the distance into an analog output signal.