This paper presents the error correction method of magnetic position sensor using recursive least square method (RLSM) with forgetting factor. Magnetic position sensor is proposed for linear position detection of the linear motor which has tooth shape stator, consists of permanent magnet, iron core and linear hall sensor, and generates sine and cosine waveforms according to the movement of the mover of the linear motor. From the output of magnetic position sensor, the position of the linear motor can be detected using arc-tan function. But the variation of the air gap between magnetic position sensor and the stator and the error in manufacturing process can cause the variation in offset, phase and amplitude of the generated waveforms when the linear motor moves. These variations in sine and cosine waveforms are changed according to the current linear motor position, and it is very difficult to compensate the errors using constant value. In this paper, the generated sine and cosine waveforms from the magnetic position sensor are compensated on-line using the RLSM with forgetting factor. And the speed observer is introduced to reduce the effect of uncompensated harmonic component. The approaches are verified by some simulations and experiments.