To understand the fundamental limit of performance with a given laser radar system, the phase noise of a testbed laser radar has been investigated. Apart from the phase noise in the transmitter laser and the local oscillator laser, additional phase noise was introduced by vibrations caused by fans in power supplies and cooling systems. The stability of the mechanical structure of the platform was also found to be of great importance. Furthermore, a model for the signal variations from diffuse targets has been developed. This model takes into account the stray light, the speckle decorrelation, and Doppler shift due to moving targets.