A system and method to detect angular rotation, linear displacement and/or surface deformations is presented. The method is based on the ability of a linear polarized light to interact with magnetic materials and to change its polarization angle due to Faraday effect. A basic structure of the system consists of a magneto-optic (MO) film with a two-domain structure and a single domain wall which are generated by gradient magnetic field produced by opposite polarity permanent magnets placed near the film. An AC magnetic field applied perpendicular to the MO film surface causes the magnetic domain wall in the MO film to oscillate at the same frequency. This leads to a detected output AC modulated signal. By measuring the temporal changes in this signal, information on angular rotation, linear displacement and/or surface deformation can be obtained.