You could use for instance a device from Pepperl & Fuchs; they have devices with a diameter of 5 mm (M5 x 0.5 threaded) or even smaller. You may check http://pfntdb.pepperl-fuchs.com/scripts/p...rod_db.exe to see what they have.

I normally use NAMUR type switches; just connect 8V (nominal; can be anything between 5V and 25V DC actually) and measure the current in the loop: this is either less than 1 mA or more than 3 mA (sensing / non-sensing - really !!) The easiest and most reliable way to detect that is to use a series resistor (of say 1 kOhm) and an op-amp as discriminator. The output signal thus is very clean and can follow the max. speed of the sensor (approx. 5 kHz).

Another way of measuring shaft speed would be to use a reflective sensor. However, this solution is less easy (requires quite some filtering) and you'll need to make sure you only measure the shaft and not the environment (light). I personally prefer the prox. switch.

Regards,
Menno van den Berg