Recent years have seen a growing interest in the use of electro-optic sensors for a wide variety of remote sensing applications. Although the detailed design and format of electro-optic systems vary according to each particular task, to-date they have all employed very similar and very basic signal processing techniques. These techniques normally make use of just angular subtense of the signal for spatial filtering and some degree of spectral band-limiting in order to distinguish the signal from the background features. The spatial filtering is usually carried out by analysing an image of the signaland the surrounding background using post-detector electronic processing algorithms. However, because the detectors and detector arrays do not respond to the instantaneous amplitude but to intensity which is the time averaged amplitude, much valuable information is lost in the postdetector stage. The thesis describes some preliminary research into a novel technique of pre-detector signal processing which has been named Optical Transform Image Modulation (OTIM). Using OTIM it is shown that is is possible to selectively modulate the optical signals by manipulations of the light amplitude prior to detection and thereby make better use of the signal's spatial, spectral and coherence properties. The theoretical and experimental work has demonstrated that the OTIM technique can be used to realise a practical sensor which is far more discriminating than conventional electro-optic systems, and that this high-level of discrimination is achieved with inexpensive and readily available optical components. The thesis also indicates areas where further research into OTIM will lead to the incorporation of more powerful signal processing schemes.