Mesenchymal stem cells (MSCs) are frequently used as a therapeutic, but reliable imaging technique to longitudinally evaluate the engraftment of transplanted cells is inadequate. For magnetic resonance imaging (MRI), it is essential to understand the technical competence of in vitro stem cells labeling with iron oxide with regard to its relaxation behavior and significance of its biological expressions. The purpose of the study was to optimize the effective labeling of MSCs with high transverse relaxivity iron oxide contrast agent with protamine sulfate and also evaluate the biological effects (phenotype and function) of labeled MSCs. Our results demonstrated that 50:3 μg/ml of Fe-Pro complex containing 10% serum at an incubation time of 6 h were ideal for effective in vitro labeling. Relaxometry study demonstrated that almost an 8-fold increase in relaxation rate (R2) was observed in labeled MSCs by comparing with unlabeled. Marginal alteration in Oct4 and CD146 genes, and phenotypic CD45 expressions were detected after labeling. T2-weighted images and histological analysis confirmed the homing of transplanted cells to the site of injury. The relaxometry based optimized labeling method of MSCs could be extrapolated for cellular MRI and may be useful in stem cell tracking in various pre-clinical and clinical studies.