Sensor localization is a central problem for sensor networks. If the sensor positions are uncertain, the target tracking ability of the sensor network is reduced. Sensor localization in underwater environments is traditionally addressed using acoustic range measurements involving known anchor or surface nodes. We explore the usage of triaxial magnetometers and a friendly vessel with known magnetic dipole to silently localize the sensors. The ferromagnetic field created by the dipole is measured by the magnetometers and is used to localize the sensors. The trajectory of the vessel and the sensor positions are estimated simultaneously using an Extended Kalman Filter (EKF). Simulations show that the sensors can be accurately positioned using magnetometers.