In this paper, a new non-contact sensor is presented for detecting torque of a rotating stepped shaft which is frequently employed in power transmission system. This sensor doesn’t require cutting or lengthening the rotating shaft. Torque value is obtained by using two magnetic sensors to sense magnetic field intensity of two permanent rubber magnets fixed at the outer surface of the shaft. The phase difference between these two induction signals is used to determine torque of the stepped shaft. A real-time algorithm based on LabVIEW is employed to obtain the measured torque value. The present work has demonstrated that non-contact torque measurement for rotating stepped shaft by monitoring magnetic field is feasible. It seems like that further development will result in low-cost torque sensor. It is hoped that this kind of sensor can lead to a new development direction of torque sensor for rotating shaft.