Machine tools have greatly improved in recent decades. Among them, miniaturized machine tools (mMTs) that have advantages in terms of reduced energy consumption, space requirements, costs, and other resources are becoming more and more popular in the area of micro scale parts manufacturing. However it is exceedingly difficult to calibrate an mMT due to its small size. This paper proposes a novel method for identifying the geometrical errors of a rotary axis of miniaturized 5-axis machine tools using two position sensitive detectors (PSDs) and a laser diode. This work not only reduces the complication of the system structure and setup but also solves the problem of assembly. We propose a method to determine errors based on the geometrical position of PSDs, laser beam path, and its readout signals after each angle of rotation. The homogenous transformation approach is used to find the individual error components. A system sensitivity analysis is also presented in this paper.