This paper presents an original system to measure yarn diameter using coherent optical signal processing to eliminate the influence of hairiness over the output signal. The system consists of optical hardware to produce an image which characterises the yarn diameter and electronic hardware that converts the optical yarn diameter image into a proportional voltage. LabVIEW customised software was used to acquire and process the output voltage interfaced through a Data Acquisition Board. The system determines traditional commercial yarn irregularity parameters including Ud (Mean Deviation), CVd (Coefficient of Variation), SDd (Standard Deviation), types of irregularities, frequency diagrams and spectral analysis based on FFT (Fast Fourier Transform). Moreover, several other parameters were also obtained, such as DRd (Deviation Rate), IDRd (Integral Deviation Rate), spectral analysis based on FWHT (Fast Walsh Hadamard Transform) and FDFI (Fast Impulse Frequency Determination), and length of irregularities classified for an overall variation range. A parameterisation comparison between two yarns is presented.