A system for use with a subterranean well can include a magnetic sensor, a magnetic device which propagates a magnetic field to the magnetic sensor, and a barrier positioned between the magnetic sensor and the magnetic device. The barrier can comprise a relatively low magnetic permeability material. A method of isolating a magnetic sensor from a magnetic device in a subterranean well can include separating the magnetic sensor from the magnetic device with a barrier interposed between the magnetic sensor and the magnetic device, the barrier comprising a relatively low magnetic permeability material. A well tool can include a housing having a flow passage formed through the housing, a magnetic sensor in the housing, and a barrier which separates the magnetic sensor from the flow passage, the barrier having a lower magnetic permeability as compared to the housing.