In this paper we discuss results obtained with an in-line Fabry-Perot interferometer (FPI) built by splicing a small section of capillary fiber between two pieces of standard single mode fiber, resulting in a rectangular air cavity. The FPIs were characterized regarding sensitivity to temperature and longitudinal strain. The FPIs were bonded to pieces of Terfenol-D, a magnetostrictive alloy, to be used as magnetic field sensors. Fiber Bragg Gratings were also bonded to Terfenol-D for comparison. The FPI based on capillary optical fiber and Terfenol-D showed a higher sensitivity to an applied magnetic field when compared to an FBG.