The ability of magnetotactic bacteria to orient and migrate along geomagnetic field lines is based on intracellular magnetic structures, the magnetosomes, which comprise nano-sized, membrane bound crystals of magnetic iron minerals. The formation of magnetosomes is achieved by a biological mechanism that controls the accumulation of iron and the biomineralization of magnetic crystals with a characteristic size and morphology within membrane vesicles. This paper focuses on the current knowledge about magnetotactic bacteria and will outline aspects of the physiology and molecular biology of magnetosome formation. The biotechnological potential of the biomineralization process is discussed.