Prior magneto‐optical transmission models through ferrofluids are limited by oversimplifications which hinder accuracy and generalizability. To overcome this challenge, this study models the magnetic field effect on the magneto‐optical transmission through hematite ferrofluid using the method of invariant embedding. Optical coherence tomography (OCT) is used to extract the changes in the refractive index, enabling a discovery of a magnetodielectric effect for the hematite ferrofluid. To establish a basis for control and understanding, the influence of the magnetic field on the spatial transmission profile at different wavelengths, optical propagation lengths, and the effect of variation of each size parameter on the optical transmission have been investigated. Further parametric studies allowed finding out an analogy to nonuniform, cascade, volume holographic diffraction gratings, which is crucial for a wide range of optical and bioimaging applications. Compared to the experimental results, the presented model achieves 99% accuracy over the wavelength range (300–1100) nm under uniform static magnetic field (0–6.5) mT. Besides, the conspicuous lead of evidentiary understanding of magneto‐optical interactions with magnetic fluids, the structural milestones of the model can be further utilized to model similar challenging constructs in complex media. The innumerable applications of study extend to involve communication engineering, biomedical, optical, and security applications.