Diagnostic tests are generally two or three-tier and based on classical test theory. In this research, the Four-Tier Diagnostic Test (FTDT) was developed based on modern test theory to determine understanding of physics levels: scientific conception (SC), lack of knowledge (LK), misconception (MSC), false negatives (FN), and false positives (FP). The goals of the FTDT are to (a) find FTDT constructs, (b) test the quality of the FTDT, and (c) describe students' conceptual understanding of physics. The development process was conducted in the planning, testing, and measurement phases. The FTDT consists of four-layer multiple-choice with 100 items tested on 700 high school students in Yogyakarta. According to the partial credit models (PCM), the student's responses are in the form of eight categories of polytomous data. The results of the study show that (a) FTDT is built on the aspects of translation, interpretation, extrapolation, and explanation, with each aspect consisting of 25 items with five anchor items; (b) FTDT is valid with an Aiken's V value in the range of 0.85-0.94, and the items fit PCM with Infit Mean Square (INFIT MNSQ) of 0.77-1.30, item difficulty index of 0.12-0.38, and the reliability coefficient of Cronbach's alpha FTDT is 0.9; (c) the percentage of conceptual understanding of physics from large to small is LK type 2 (LK2), FP, LK type 1 (LK1), FN, LK type 3 (LK3), SC, LK type 4 (LK4), and MSC. The percentage sequence of MSC based on the successive material is momentum, Newton's law, particle dynamics, harmonic motion, work, and energy. In addition, failure to understand the concept sequentially is due to Newton's law, particle dynamics, work and energy, momentum, and harmonic motion.