Magnetic nanoparticles have been intensively investigated due to their magnetic characteristics, quantum dot effects, as well as their potential applications in the area of bioscience and medicine. Very promising nanoparticles are magnetic iron oxide nanoparticles with appropriate surface modification which have been widely used experimentally for masses of in vivo applications such as magnetic resonance imaging contrast enhancement, drug delivery, and hyperthermia, etc.. All these biomedical applications require that these nanoparticles have effective magnetic values and suitable sizes. On the other hand, these applications need special surface modification of these particles, which not only have to be non-toxic and biocompatible, but also allow a targetable drug delivery in a specific area. This review summarizes the current research situation and development of magnetic iron oxide nanoparticles, and the biomedical applications ranging from drug delivery to hyperthermia for tumor-targeted therapy.