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Variable reluctance sensors are widely used in automotive applications and well known for their low cost and reliability. Because of recent developments of new magnetic materials and manufacturing technologies, it was possible to introduce new sensor configurations which can lead to dramatic improvement in sensor performance. This paper describes a novel variable reluctance speed sensor with two permanent magnets located in the proximity of an exciter wheel and presents the magnetic analysis of this sensor. This novel sensor configuration has the ability to develop high signal strength over the high temperature range at low exciter wheel speeds and a large air gap between the sensor and the exciter wheel. In applications where the available space for the sensor is limited, it shows much better performance than prior art sensors. The sensor structure is devised to fit a very limited space and to provide high performance signal for a variety of applications.