The theoretical model of magneto-optic fiber Bragg gratings （MFBG） is proposed and the nonlinear coupled-mode equations for circularly polarized light in MFBG is derived for the first time. Our analysis shows that the coupling between right- and left-handed circularly polarized light along with the magnetically circular birefringence （the Faraday effect） resulting from the nonlinear effects and the grating structure is responsible for the coupling of forward and backward guided optical waves with identical states of polarization. In the MFBGs, the reversal of transmission characteristics and lower power threshold of nonlinear bistable switching can be achieved under appropriate magneto-optic bias. The MFBG-based pulse reshaping scheme by utilizing cross-phase modulation （XPM） of right- and left-handed circularly polarized light has a great advantage in magnetic adjustability over that based on conventional fiber gratings and is useful for the development of dynamically controllable all-optical 3R regenerators.