The technique investigates the application of the AC magneto-optical dichroism of magnetic fluids in fast and low-cost immunoassays by taking advantage of liquid optical cavities. Magnetic nanoparticles (MNPs) served as biomarkers. Variations in particle size were characterized by monitoring the amplitude of the second harmonic of transmitted light under alternating magnetic field excitation. Differential beams with polarization directions parallel and perpendicular to the magnetic field can improve signal-to-noise ratio. We designed a liquid optical cavity that allowed multiple reflections of light in magnetic fluid to increase the optical path. This cavity enhanced the magneto-optical signal and lowered the detection limits of target molecules. The limit of detecting biotin in the streptavidin–biotin binding system in conjunction with MNPs was 0.027 μg/mL and the least amount of time required for detection was 2.3 s. It is expected to achieve a low-cost, compact, and portable biosensor for rapid detection of trace viruses.