I need to purchase a distance sensor that will be fixed in place and used to determine distance to the top of a fairly fast moving piston along the axial direction in line with the sensor. The top of the piston can be covered in whatever material works best for sensor accuracy, and the entire apparatus can operate in the dark if needed. Distance will range from 50mm to 500mm. Position measurement must have an accuracy range below 1.5mm. Update rate must be 1000hz or greater (i.e. update every 1ms or faster).
I see there are many options for me at high cost, but I'm limiting my budget to $500 and below for the next few days while I research more. This does not mean I won't spend whatever is needed however. As of now I've seen nothing acceptable for under that price, but it's hard to tell as many companies won't publish prices for these types of sensors.
I'm happy to explain more about the implementation if needed.
I wish more people were reading this post, because I have great suggestions for DIYers after researching a lot of options the past few days. Currently I'm looking at offerings from Turck.com relating to reading a magnetized strip. This would read position from the side rather than from above or below as I describe in my original question. Turck calls it their "LM-2 line" and some options look pretty affordable and quite a bit under $500. Here's a brochure they provide - it documents how they read a magnetic strip: https://www.turck.us/attachment/B1027.pdf
There is one answer here related to a different sort of solution involving a device which reads a code every 0.5mm or 1.0mm taped to a rod which is attached to the piston. Device would read in direction perpendicular to direction of motion. This would probably be my 2nd or 3rd choice if I'm unable to find an affordable sensor as described in my question.
If I had time I'd implement the following solution which I wish I had thought of a month ago: tape a 300mm strip of reflective material which varies in reflectivity along its length. shine a laser on the tape and detect amount of light which reflects. simple solution, easy to calibrate and (if I knew where to get the tape) should be low cost.