The external magnetic field required to activate a magnetic fluid in an industrial application is sufficiently large that magnetization is no longer a linear function of the external field strength, i.e. magnetic fluids exhibit nonlinear characteristics. The aim of our research was to develop a measuring system which is capable of determining the nonlinear AC susceptibility of magnetic fluids at discrete frequencies and in the presence of a high-intensity driving magnetic field. The measurement of susceptibility is based on the determination of the change in frequency of a low-intensity field, which is generated by an LC oscillator. The application of sinusoidal excitation to the material results in a variation in the susceptibility that modulates the frequency of the measured low-intensity field and in the appearance of higher-order harmonics of the driving field. The higher-order components of the nonlinear AC susceptibility are extracted from the measured response by Fourier analysis. By applying the measuring system, the nonlinear susceptibility of water-based ferrofluids (Ferrotec’s EMG 700) and its dependence on the magnetic field strength were investigated.