Magnetostrictive composites are of great interest for real-time remote stress sensing and structural health monitoring. In this paper, we introduce a new approach for modeling the magnetic field induced by an external load applied on an epoxy based composite material filled with Terfenol-D particles. The model is based on an assumed sequence of physical processes, which takes place at the microscopic scale, and includes both domain switching and magnetization rotation. Comparison of calculated and measured results strengthens the validity of the assumed sequence of physical processes and provides valuable insights important for application development.