Demagnetization can affect the interpretation of magnetic data significantly. However, little attempt has been made to understand its effects by analyzing systematically the differences between demagnetization-corrected and uncorrected magnetic properties. A systematic error analysis is made in this paper using a 2-D elliptic cylinder model. Generally, demagnetization changes the effective susceptibility and remanence or the effective magnetization in both magnitude and direction. Error analyses show that demagnetization causes the magnitude of effective magnetization of a magnetic body to be less than its intrinsic magnetization. This implies that a theoretical anomaly computed without accounting for demagnetization will overestimate the amplitude of the anomaly associated with the body. The decrease in magnetization magnitude depends on the intrinsic magnetic susceptibility of a body as well as on the body's geometry (flattening ratio) and its relative orientation (magnetic dip) in the geomagnetic field. The magnitude of the effective magnetization, relative to the intrinsic magnetization, decreases with increasing intrinsic magnetic susceptibility. This factor dominates the body's effective magnetization. When intrinsic magnetic susceptibility is less than 0.1 SI, the demagnetization effects are generally insignificant and may be ignored in magnetic anomaly modeling. The magnetic dip and flattening ratio only cause minor fluctuations in the effective magnetization. Demagnetization also changes the direction of the effective magnetization vector by making it approach the plane of flattening of any flattened body. The difference between the inclinations of the effective and intrinsic magnetization changes the horizontal positions of extreme values of an anomaly, which may affect the precision of magnetic interpretations. Generally, the inclination difference is significant for magnetic dips of 30° to 70° and increases with increasing susceptibility and decreasing flattening ratio. In particular, for large flat-lying magnetic geological units located at middle magnetic latitudes (30° to 70°), significant magnetic inclination deflections are expected because of demagnetization effects. Theoretical, experimental, and practical examples of magnetic interpretation are presented to illustrate these demagnetization effects.