This study reports a novel one-step synthesis of hybrid iron oxide/polypyrrole multifunctional nanoparticles encapsulating hydrophobic drug and decorated with polyethylene glycol. The overall process is based on the in situ chemical oxidative polymerization of pyrrole along with the reduction of ferric chloride (FeCl3) in the presence of ketoprofen as model drug and PEGylated surfactants. The final product is a nanocomposite composed of polypyrrole and a mixture of FeO/Fe2O3. Different concentrations of ketoprofen were encapsulated in the nanocomposite, and were characterized by Fourier transform infrared spectroscopy (FTIR) and differential scanning calorimetry (DSC). Encapsulation efficiency of the final product was measured by absorption, which can reach up to 98%. The release experiments confirmed complete drug release after about 3 h in PBS solution. Morphological characterization of the nanocomposites was performed by electron microscopy (scanning and transmission electron microscopy) which confirmed the spherical geometry and opaque nature of nanoparticles with average particle size well below 50 nm. The final product is multifunctional system, which could act both as a nanocarrier for drug molecules as well as a contrasting agent. Magnetic relaxometry studies confirmed their possible applications as potential contrast agent in the field of magnetic resonance imaging (MRI).