A magnetic encoder is currently used in precision positioning system because it has many advantageous characteristics. The signals generated from magnetic sensor are always disturbed by noise, that is, these signals are not ideal. For the purpose of precise positioning and high resolution in many industrial control systems, this paper proposes an approach, which contains two parts: The first part is “eliminate the harmonic in the signals” by applying an adaptive notch filter. The second part is “the phase tracking and signal reconstruction” by applying software phase-locked loop (SPLL). Through this scheme of encoder signal processing, it could eliminate the noise and improve the accuracy of the system. The simulation results are provided to demonstrate the promotion of the resolution in positioning system.