This study explored the influence of crystallite size on a nanoparticle-coated fiber optic Mach-Zehnder Interferometer (MZI). The primary aim was to enhance the magnetic properties of the nanoparticles for application in fiber optic sensors designed for magnetic field sensitivity. The motion of the nanoparticles within the magnetic field induced alterations in the sensor's transmission, creating an imbalance in the optical signals between the interferometer arms. Nickel ferrites (NiFe2O4) with average crystallite sizes of 3.3 nm, 51.9 nm, and 74.3 nm were used. The nanoparticles were identified by X-ray diffraction, VSM magnetic measurements, and Mössbauer spectroscopy. Structural parameters obtained from X-ray diffraction underwent refinement using the Rietveld method, and the Scherrer equation was applied to determine the average crystallite size. Magnetic sensor performance was assessed for sensitivity, precision, and accuracy for different nanoparticle sizes. The relationship between output power and applied magnetic field exhibited linearity between 87.6% and 99.2%. Sensitivity varied from 1.65 dB/Oe to 3.17 dB/Oe for different particle sizes, indicating an increase in sensitivity with nanoparticle magnetization. This study establishes a correlation between crystallite size and nanoparticle magnetization, enhancing sensor responsiveness. This optimization facilitates the development of tailored electric current and magnetic field sensors, considering nanoparticle size and their distinctive magnetic properties. Although the primary focus was on the optical sensor, a comprehensive nanoparticle characterization was crucial as it directly influenced sensor performance.