Magnetic susceptibility measurements of 3-4 ML Fe/W(001) ferromagnetic films demonstrate that this is a 2DXY system in which a finite-size Kosterlitz-Thouless (KT) transition occurs. The films are grown in ultrahigh vacuum and their magnetic response is measured using the magneto-optic Kerr effect (MOKE). The analysis of many independently grown films shows that the paramagnetic tail of the susceptibility is described by χ(T ) = χ0 exp B/(T /TKT − 1) a , where a = 0.50 ± 0.03 and B = 3.48 ± 0.16, in quantitative agreement with KT theory. Below the finite-size transition temperature TC (L), the behaviour is complicated by dissipation (likely related to the re-emergence of four-fold anisotropy and magnetic domains). A subset of measurements with very small dissipation most closely represents the idealized system treated by theory. For these measurements, there is a temperature interval of order tens of K between the fitted Kosterlitz-Thouless transition temperature and the finite-size transition temperature, in agreement with theory. The normalized interval TC (L)/TKT − 1 = 0.065 ± 0.016 yields an estimate of the finite size L affecting the film of order micrometers. This gives experimental support to the idea that even a mesoscopic limitation of the vortex-antivortex gas results in a substantial finite-size effect at the KT transition. In contrast, fitting the paramagnetic tail to a power law, appropriate to a second order critical transition, gives unphysical parameters. The effective critical exponent γ ef f ≈ 3.7 ± 0.7 does not correspond to a known universality class, and the fitted transition temperature, Tγ, is much further below the peak in the susceptibility than is physically reasonable. * [corresponding author] venus@physics.mcmaster.ca 1 V. L. Berezinskii, Sov. Phys. -JEPT 32, 493 (1971).