The magneto-optical effect in magnetic fluids is investigated. The phase difference Â¿ between the ordinary ray and the extraordinary ray transmitted through the magnetic fluid thin film, was found to be described by the functional form Â¿1f(H)/[T-T1 +f(H)], where H is the magnetic field applied to the magnetic fluid film, T is the absolute temperature of the film, f(H) is a certain increasing function of H, and T1 and Â¿1 are positive constants. The field dependence of the optical transmissivity of magnetic fluid thin films is well described by the cluster model of ferrous colloidal particles in the applied field direction when the aggregation is small. The field dependence of transmissivity is, however, explained neither by the electric absorption of the clusters, nor by the Rayleigh scattering when the cluster becomes larger. The effect of diffraction by linear clusters oriented by the applied field must be taken into account in explaining the optical extinction.