Digitally enhanced heterodyne interferometry is a laser metrology technique employing pseudo-random codes phase modulated onto an optical carrier. We present the first characterization of the technique's displacement sensitivity. The displacement of an optical cavity was measured using digitally enhanced heterodyne interferometry and compared to a simultaneous readout based on conventional Pound-Drever-Hall locking. The techniques agreed to within 5 pm/ radicalHz at 1 Hz, providing an upper bound to the displacement noise of digitally enhanced heterodyne interferometry. These measurements employed a real-time signal extraction system implemented on a field programmable gate array, suitable for closed-loop control applications. We discuss the applicability of digitally enhanced heterodyne interferometry for lock acquisition of advanced gravitational wave detectors.