If you're going a few rotations, you can use a potentiometer. They are sold at DigiKey (
http://digikey.com) under 'linear potentiometers'. They come in 1-turn (most are actually 270 degrees), 3 turn, 5 turn, and 10 turn. They are connected to an analog breakout and give a voltage between 0 and 5v (it's actually a variable resistor, so it's a ratio between the ground and power you feed it, which is 5v from the analog breakout).
If you need an absolute encoder, I've heard good things about DigiKey 987-1393-ND (360 degree absolute encoder) from Chief. We bought a bunch, and I will report their performance later.