With the wide application of the high-speed electrical machine with the active magnetic bearings (AMBs), improving the dynamic response and the resolution of the displacement sensor for AMBs becomes an actual challenge for industrial development. This paper proposes a self-differential eddy current displacement sensor (ECDS) for radial AMBs system. The phase advance network method was utilized to improve the dynamic characteristic for the sensor based on the equivalent transfer function model. The reason of the sensor-to-sensor crosstalk was analyzed in detail to provide a theoretical basis for improving the resolution of the sensor. First, the operating principle of the ECDS was analyzed in detail. Second, the miniaturization design was presented: the two symmetrical probe coils were used as the working inductors in the Hartley oscillation circuit to form a self-differential structure to simplify the measuring circuit observably, and suppress the common mode interference. Third, the dynamic characteristic of the sensor and the sensor-to-sensor crosstalk was described and compensated. Finally, a series of experiments was carried out to test the sensor performance. The experimental results showed that the ECDS with the features of the minimum circuit, the wide bandwidth, and the high resolution can greatly improve the controllability of the AMBs system.