The laser multi-degree-of-freedom (MDOF) error measurement methods are widely used for measuring motion errors of machine tools. Since a laser diode has the advantage of small size and low cost, it is always adopted as the laser source of the laser MDOF error measurement system. However, the stability of the laser MDOF error measurement system will be influenced by the laser beam drifts, which are caused by the atmospheric distribution and the deformation of the optical elements and its holders. In addition, the beam spot of the laser diode is elliptical, which will influence the accuracy of the laser MDOF error measurement system. Therefore, a laser beam drifts compensation method is proposed to reduce the effects of the laser beam drifts on the measurement accuracy of the system. In the meantime, a beam shaping method is proposed to shape the laser diode spot. A laser diode-based MDOF error measurement system is conducted according to the measurement principle, the compensation principle and the beam shaping principle. It is verified that the stabilities of the horizontal and vertical straightness signals and the pitch and yaw angular signals are improved to be 5.5μm, 2.5μm, 1.3arcsec and 1.7arcsec with the laser beam drifts compensation from 6.9μm, 6.7μm, 5.4arcsec and 4.6arcsec without the laser beam drifts compensation. The measurement accuracy of the designed measurement system for measuring the straightness errors and the angular errors are better than 1.9μm and 1.6arcsec.