Abstract: A novel acoustic navigation method is described. The method is based on a continuous waveform transmitted from a tethered object being tracked and received by a bottom node. Accurate range and bearing measurements are made by differential phase detection and phase unwrapping of the received signals. Phase detection is performed using a quadrature phase sensitive detector (QPSD). The paper investigates, using computer simulation, the performance of the system in the presence of noise. The RMS error in the phase estimate was found to be 14^o for range estimation and 17^o for angle estimation even with a poor SNR of 0 dB. These estimates represent a theoretical equivalent range error of 5.8 mm and angle error of 0.5^o, respectively, for an operating frequency of 10 kHz and 5 λ hydrophone separation. These results indicate potentially a much better accuracy than that offered by the conventional ultra-short baseline system.