A micro-position sensor and sensing system using the Faraday Effect. The sensor uses a permanent magnet to provide a magnetic field, and a magneto-optic material positioned in the magnetic field for rotating the plane of polarization of polarized light transmitted through the magneto-optic material. The magnet is independently movable relative to the magneto-optic material so as to rotate the plane of polarization of the polarized light as a function of the relative position of the magnet. In this manner, the position of the magnet relative to the magneto-optic material may be determined from the rotated polarized light. The sensing system also includes a light source, such as a laser or LED, for producing polarized light, and an optical fiber which is connected to the light source and to the magneto-optic material at a sensing end of the optical fiber. Processing electronics, such as a polarimeter, are also provided for determining the Faraday rotation of the plane of polarization of the back-reflected polarized light to determine the position of the magnet relative to the sensing end of the optical fiber.