In this article, we present our nanoscale displacement sensing and estimation (nDSE) theory, which describes the theoretical limitations of displacement-sensing and predicts the practicality of measuring nanoscale displacements using optical microscopy, and indirect displacement-measurement-based alignment (IDMA), an application framework for achieving precision alignment using individual displacement sensing rather than directly comparing nominally identical alignment marks. We propose that IDMA may form the basis for low-cost overlay alignment metrology for emerging fabrication techniques such as nanoimprint lithography. As a first step in experimentally investigating IDMA on a nanoimprinting tool, we present a variation, direct displacement-measurement-based alignment (DDMA), and we describe proof-of-concept experiments performed using an in-house nanoimprinter. We demonstrate that DDMA, enabled by nDSE, can measure misalignments in the tens of microns to a precision easily better than 100 nm. We maintain that in more optimized conditions DDMA should be expected to provide precisions in the 20 nm range. More to the point, we expect that IDMA, the preferred application framework, will demonstrate even better results due to its inherent robustness against mismatched alignment targets, an inevitable issue faced in real-world application environments. For more background information please see the work presented by J. Gao, C. Picciotto, and W. Jackson [Appl. Phys. A 80, 1265 (2005)] and C. Picciotto, J. Gao, E. Hoarau, and W. Wu [Appl. Phys. A 80, 1287 (2005)]. (c) 2005 American Vacuum Society.