Abstract In this paper, a compact and diffraction limited heads up display (HUD) image source is presented. The great benefit of this design is its diffraction limited optic, compacted structure, economic considerations, simplicity in manufacturing and high efficiency image quality. The innovation of this design is the use of a polarization grating-polarization conversion system (PG-PCS). This module transforms the unpolarized Gaussian beam to a linearly polarized beam and it simultaneously homogenizes the spatial intensity profile. With this module, it is possible to increase the efficiency of illumination and to utilize the ordinary micro LCD instead of using a digital micro mirror device (DMD) and liquid crystal on silicon (LCOS) micro displays. The diameter of the image plane is 76.2 mm (in accordance with conventional types). Our design yielded uniform illuminated image and its high efficiency facilitates display readability in see-through HUDs operating in high ambient light as well as low ambient light.