A power steering fluid filter includes a housing that defines an interior chamber, an inlet port communicating with the upstream end of the interior chamber, and an outlet port communicating with the downstream end of the interior chamber. A movable thimble filter is disposed within the housing and an annular magnet is located at the mouth of the thimble filter. A spring biases the thimble filter and magnet toward the inlet port of the housing. In use, power steering fluid passes through the housing and debris is captured by the thimble filter. Ferrous particles entrained in the fluid flow are attracted to and captured by the magnet. When the thimble filter becomes clogged, it is displaced by the pressure of the fluid against the clogged filter so that fluid can flow around and bypass the thimble filter while still being exposed to the magnet for removing ferrous particles.