A novel micron-range displacement sensor based on a whispering-gallery mode (WGM) microcapillary resonator filled with a nematic liquid crystal (LC) and a magnetic nanoparticle- coated fiber half-taper is proposed and experimentally demonstrated. In the proposed device, the tip of a fiber half-taper coated with a thin layer of magnetic nanoparticles (MNPs) moves inside the LC-filled microcapillary resonator along its axis. The input end of the fiber half-taper is connected to a pump laser source and due to the thermo-optic effect within the MNPs, the fiber tip acts as point heat source increasing the temperature of the LC material in its vicinity. An increase in the LC temperature leads to a decrease in its effective refractive index, which in turn causes spectral shift of the WGM resonances monitored in the transmission spectrum of the coupling fiber. The spectral shift of the WGMs is proportional to the displacement of the MNP-coated tip with respect to the microcapillary’s light coupling point. The sensor’s operation is simulated considering heat transfer in the microcapillary filled with a LC material having a negative thermo-optic coefficient. The simulations are in a good agreement with the WGMs spectral shift observed experimentally. A sensitivity to displacement of 15.44 pm/µm and a response time of 260 ms were demonstrated for the proposed sensor. The device also shows good reversibility and repeatability of response. The proposed micro-displacement sensor has potential applications in micro-manufacturing, precision measurement and medical instruments.