The preparation and processing of maghemite-silica gel nanocomposites have been investigated in order to maximize their magneto-optical response for magnetic field sensing applications. In situ precipitation of maghemite nanoparticles from an iron salt precursor during the sol-gel processing of the silica matrix has been carried out while controlling the time, temperature, and environment at each step of the whole process. In this paper, the nanostructural, magnetic, and magneto-optical properties of these materials are correlated with the processing path followed, from the starting sol to the partially densified monolith. Results demonstrate that introducing a washing treatment prevents the formation of hematite phase as well as an excessive particle agglomeration. Different processing conditions of identical sols may lead to nanocomposites with a Verdet constant at low magnetic fields (0.01 T) ranging from 200 to 950 rad T(-1) m(-1), which is the typical value of commercial terbium gallium garnets used in Faraday rotators.