We study the melting behavior of a binary system (R = 4.5 μm, r = 2.8 μm) of paramagnetic colloidal spheres in two-dimensional (2D) circular cavities. A repulsive interaction between the particles is caused by an external magnetic field B that induces magnetic dipole moments perpendicular to the sample plane. By means of video microscopy, we investigate the positions of the particles and their trajectories. For small interaction strengths, we observe a completely liquid phase where large and small particles diffuse across the entire system. With increasing B the larger particles become—due to their larger magnetic moment—localized and form a stable structure while the smaller particles behave still as a liquid. For even higher magnetic fields, the small particles also become increasingly localized and preferentially arrange as interstitial sites between the structures formed by the large particles. We present a systematic study of this rather complex multi-stage melting process which strongly depends on the particle numbers of large and small particles.