Which one is more correct: "works at a university" or "works in a university"?

My relative is a fairly big academic and works at a university

is correct.

My relative is a fairly big academic and works in a university

is wrong.

See a similar example at Cambridge Dictionaries Online.

The quoted sentence is fine.

'In' is usually used when speaking about the general kind of work someone does, e.g.

My father works in telecommunications.

but

My father works at the telephone exchange.

Using 'in' is not just plain wrong - although in that context it does sound it. I would possibly use 'in' if I meant that he works there, but is not directly involved in the university establishment, for example someone who is for whatever reason doing an unrelated job but using the university for accommodation, or a cleaner etc.

I would also use "at" in that case. It's completely correct.