Abstract: The novel temperature gradient compensation circuit is designed to overcome temperature gradient problems in inductive or capacitive circuits, such as, differential variable reluctance transducers. The system comprises, in one embodiment, the use of an inductive or alternating current bridge which sends its output to a low pass filter in order to remove the alternating current component of the bridge output. The output of the low pass filter is fed into an instrumentation amplifier whose gain can be adjusted. The output of this instrumentation amplifier is a signal that is proportional to the temperature gradient experienced by the alternating current bridge. The output of the alternating current bridge is also fed to a high pass filter and then sent to a demodulator and amplifier. By subtracting the direct current output from the alternating current output, the effects of temperature do not have an effect upon the result.