In the existing machine tool field, the focus was on the displacement of the feed system from the viewpoint of the motion of the machine tool. The displacement of the tool or spindle of a machine tool is useful for developing various functions. In this study, using the acceleration data of the spindle, we proposed an algorithm that tracked the displacement of the spindle with respect to the pseudo-step waveform motion. In order to solve the bandwidth problem of the pseudo-step waveform, the displacement data measured by the motor encoder of the feed system was used. In addition, in order to solve the drift problem due to double integration, a new drift removal filter was proposed and a displacement estimation algorithm was implemented. In order to examine the performance and possibility of the proposed spindle displacement estimation algorithm, it was applied to a gantry-type engraver and its excellent performance was confirmed compared to other algorithms.