This paper describes a novel motor and encoder concept that is designed to reduce cost. The new design uses a low-cost stepper motor and a low-resolution optical encoder, together with high speed digital signal processing to achieve high torque levels with low ripple, as well as accurate position and velocity sensing. WHile more involved electronics and signal processing are required, the cost of these components continue to decrease compared to that of motors and sensors, making the overall proposed design feasible and economical. Data from a prototype implementation demonstrate the promise of this design.