The optical and magneto-optical properties of single crystals of YFe2, CeFe2, and Ce(Fe1−xCox)2 (x≃0.1) were measured between 1.4 and 5.0 eV using a rotating-analyzer ellipsometer and a normal-incidence polar Kerr spectrometer. The electronic structures and optical properties of YFe2 and CeFe2 were calculated using the tight-binding linear muffin-tin orbital method in the atomic-sphere approximation. For YFe2 the calculations reproduce the experimental spectra. Alloying CeFe2 with small amounts of Co leads to an electronic instability which is evidenced by a low-temperature antiferromagnetic (AF) phase. The Kerr effect was measured in the AF and field-induced ferromagnetic (FM) regime. A remarkably large Kerr rotation was measured even in the AF state (up to −1°). The phase transition from AF to FM order was observed in the Kerr rotation spectra at 5 and 50 K at photon energies of 1.8 and 4.0 eV.