A compact Mach-zehnder interferometer with a novel design of directional couplers and a phase shifter has been presented as a thermo-optical sensor. With the aim of reducing device size to micro and nano dimension silicon-on-insulator technology was employed. That allowed miniaturization of device size through the reduction of its cross sectional area to 0.066 µm² and the radius of curvature of both the arms of the directional coupler and S-bends of the phase shifter to 5 µm and C-bends to 3 µm. These nano size device dimensions made it possible to reduce the coupling gap to 0.2 µm, which resulted in a significant reduction in the coupling length. The device geometry and its performance characteristics were analyzed and optimized using coupled mode analysis and finite difference time domain simulation tools, respectively. The wavelength dependent transmission loss of the device was measured at different temperature to verify and validate its performance characteristics. Tested devices showed a remarkable temperature dependent transmission characteristic offering significant changes in transmission loss band – with as low as 0.45 ⁰C change in substrate temperature. The extinction ratio and the free spectral range of the device were 26 dB and 0.26 nm respectively in the wavelength range of 1549.5 nm – 1550.5 nm. These results imply that the devices presented here can be used as compact and highly sensitive thermal sensors and optical switches.